Succeeding in the U.S. Food and Beverage Markets Tips for Small Exporters By Matthew T. Nussbaum/IESC March 27 th , 200

1. Succeeding in the U.S. Food and Beverage Markets Tips for Small Exporters By Matthew T. Nussbaum/IESC March 27th, 2006 American Chamber of Commerce Casablanca, Morocco

2. Typical Marketing Myths • MARKETNG SUPPORT - I just need to find a U.S. distributor and the checks will come in the mail before I even ship • CONNECTIONS - My cousin knows some people who knows some people • PRICING - I need to haggle or I will get screwed • UNDERSTANDING THE U.S. CONSUMER - I don’t need to understand the U.S. consumer, retailer, or importer – that’s their problem!

3. U.S. Market Reality • Hundreds of new products are introduced at the New York and San Francisco Fancy Food Shows every Summer and Winter – 90% fail. • Launching a product is a multi-year investment – 3-5 year plan. • Everybody in the supply chain has to make money or your product will fail.

4. U. S. Ethnic vs. Main St Markets • BIG difference between Ethnic and Main St • Ethnic markets • MORE Price sensitive • less sensitive on packaging design • Already understand your product • Understand quality differentiation (may not pay for it!) • Distributors fragmented, undercut each other, pricing hard to control exclusivity • Main St • Less Price sensitive • VERY sensitive on packaging • require education, live tastings, and sales support • much higher volume potential. • Distributors better organized • Ok to start in ethnic – easier entry – but strive for Main St.

5. Global Low Cost Producer or Niche PlayerYou Must Decide Required Marketing Support Niche Low-Cost Producer

6. The 20-30-40 Pricing Rule • For your product to maket it in the U.S. it HAS to confirm to the 20-30-40 Rule and still be competitive. • The Rule is this: Your CIF Price (ex-works plus shipping insurance to U.S. port) + • 20% Mark-up to the Importer (handles customs, THC, dreyage, warehouse) • 30% Mark-up to the Distributor (pickup from warehouse, delivery) • 40% Mark-up to the Retail (inventory, stock, showcase) • If your product is competitive under 20-30-40 rule AND has decent packaging and tastes good - you could have a winner. • But You Need to Know U.S. Prices to see if you’re competitive or not

7. CBEX Winners and Losers • Pomegranate Juice – Iran - W • Pomegranate Juice – Azerbaijan - L • Herbal Remedy – Italy - W • Bulk Olive Oil – Jordan - W • Packed Olive Oil - Jordan - L • Zaatar – Jordan - L • Hemp Ice Tea – Austria - W

8. Pomegranate Juice • Riding the Wave of Health Claims • Market Leader Pom-Wonderful went from $0 - $65m in sales in four years. • Use high-cost California Supplier • Race to find low-cost consistent supplier – Iran, Turkey, Azerbaijan • We hooked up an Iranian producer • And we ORGANIZED sales/distribution to maximize long term return.

9. We Provided Main St. POS material for an ethnic product

10. Why It’s Working Prt 1. • Pom-Wonderful did the heavy lifting on educating customers about Pom juice. • Product tastes great and ties in to ongoing health fad for pomegranates/antioixidant… • Makes the 20-30-40 rule • 1.65/l Aveesa Imports 20% • 2.06/l to the Distributor (Sahadi) 30% • 2.90/l to the retailer delivered 40% • $4.89 to the Consumer • PomWonderful retails for $6.99/l

11. How the money moved… • Importers are small – they leveraged their homes with an SBA loan to get the first two containers paid for. • Paid Iranian producers 50% up front, 50% upon inspection. NO L/C. • Got lucky – label sent was not FDA compliant (fat content 94grams/serving) • Made it through Customs THIS TIME – but in the future – labels not correct, not paying (LESSON TO ALL FOREIGN IMPORTERS – Bad label poses seizure/detention risk for importer) • We helped negotiate Sahadi as distributor with exclusive coverage the entire east coast - guaranteed to purchase 5 containers a year. • Paying off earlier loads and new contract makes it easier to finance the loads – allowing the PRODUCER to get paid faster.

12. Very Niche – Italian Herbal Tonics • Balestra&Mech 100 yr old company in Milan. • 12 Products with specific health benefit claims. • It took 2 years spending ~$100k on us to negotiate with distributors and finally landing one of the largest distributors in the county Nutraceutical Corp. • Launched Product 3 days ago at Expo West • to be in 2200 stores by month 36 of launch. • Manufacturer and Distributor will have to spend money to educate the customer ($50-100k) – “Blue Water” • Sales forecast yr 2 ~$500k, yr 3 $1.2m • Sales so far - $140k starting last week.

13. Jordan Retail Packed EVOO • Challenge – • small producers • labels geared for local and Gulf States • NOT Low-Cost Producer • Like retail packed because profit is better than bulk – and liked the “Pride” of having own label on U.S. shelf • USAID subsidized marketing effort.

14. IESC/CBEX Response • We redesigned four labels and we positioned three companies in the following ways • Al Toor – Bedouin Unfiltered Extra Virgin • Terra Rossa – Tuscan style (rappanelli press) • Nabali Fair Wage – socially conscious consumption trend • Followed the 20-30-40 rule and targeted the price for just below $10 on the shelf – a mid-range import.

15. Jordan Success? • The U.S. olive oil market extremely competitive – we used the 20.30.40 to get to $10 price point – but it was slow velocity – made payments slow. • Producers sent on consignment, 12 months later I’m still making payments. • We did SUCEED - we got the product in over 40 accounts and 3 distributors – in New York, New Jersey, Florida, Washington DC. Los Angeles, and San Francisco. This is a MARKET ENTRY START – not finish. Producers need to continue to risk inventory and invest in the U.S. market. It’s a multi-year investment.

16. Retailer

17. Jordan EVOO Adjustments • Reduced the price to $3/500ml and sold a bunch – but breaks the 20-30-40 rule • not enough room for the middlemen • Small customers makes it difficult to finance trade. • Retailers want product, producers want to sell… • but the sales velocity at the $10 prices will take some years to get established in the marketplace. No one will finance, not producers, not importers, not retailers – might require govt intervention. • Still working on solving the financial angle. • Might have to settle on Bulk vs. Retail Packed –easier to finance bulk, bulk prices closer to GLCP

18. Potential Moroccan Winnersw Whlsle Target Prices • Dried prunes – 12oz, whsle $2.19 • Dry black olives, 3 sizes, jumbo, large, medium, 10 lb bag food service, whsle $0.95-1.19 • Sea salt – very niche, 400 grm, Greece Kalas whlsle $1.10 • Ras el hanut – 7 spices – 2 oz, whsle $.85, nice packaging, Sadaf • Harissa Tunisian style hot sauce – market leader made in France – 14oz, $1.89

19. Moroccan Winners…. • Couscous ––medium – whlse price • Brand 1 500grm, $1.09 • Brand 2 500grm, $.93 • Brand 3 500grm, $.91 • Brand 4 2lbs $1.95 • Sardines – nobody has it with hot pepper, very popular, .55/can 125grams, in oil, .99, • Pull up opener a must. Bigger cans, make them fit for good stocking.storage

20. How do you propose to share market risk? • First- in the beginning show that you are willing to “share in the risk” • Introductory pricing • High sample allowance • Point-of-sale material, shared trade shows, website for English customers • FDA/HAACP/ISO/Organic – the more the better • Consignment or easy payment terms for first load • Geographic exclusivity or market segment exclusivity in exchange for quota; several distributors to cover wide areas – not state by state.

21. Small Exporters Can Succeed… • You HAVE to do your competitive research – can you be price competitive? Look at different pack sizes to find your best price point. • Pricing is more important the less money you have for sales and marketing support. • Get some help with package design – U.S. designers don’t know Moroccan tastes, and vice versa • And PREPARE your Distributor package carefully!