VALUE ADDED FOODS 3203

1. VALUE ADDED FOODS3203 Steven C Seideman, PhD Extension Food Processing Specialist Cooperative Extension Service University of Arkansas

2. Photo courtesy of Department of Food Science

3. Value Added • Defined as “Food items whose value has been increased through refinement, the addition of ingredients, processing or packaging that makes the whole more attractive to the buyer or readily usable by the consumer than the initial commodity”.

4. HISTORY • We live in a “Value Added” society. • Many of our grandparents or great grandparents raised their own hogs and chickens, grew produce in a garden, made their own furniture and probably made their own farm implements. • In our current society and because of the industrial revolution, it is now cheaper and easier to buy pork, eggs, produce, furniture and farm implements than it is to make it yourself.

5. History-Continued • Because of technology, mass production, strategic purchasing etc, Americans live in a value-added society. • Americans have a love affair with value-added. They can get what they want, when they want it and at a cheaper price than doing it themselves. • No matter how you look at it, “convenience sells”

6. VALUE ADDED FOODS • Have you been to a food store lately? • Look at all the choices there are of various products. • Value-added products include anything that is further processed above the commodity itself.

10. EXAMPLE OF VALUE ADDED-DAIRY PRODUCTS • Milk is the raw commodity. • Dairy field known for being creative. • Look at all the value-added products they make. • 1%, 2%, skim milk, ice cream, yogurt, and cheeses from cottage cheese to various flavors (cheddar, swiss, colby etc) and they slice it, dice it, shred it and even individually wrap slices. • Don’t forget that milk is homogenized and pasteurized- Things you don’t have to do. • These are all examples of “value added”.

16. Value Added Examples • Look at the breakfast cereal section and the bakery section. Anything above grain is “value-added”. • Look in the meat section. Anything above an unbranded steak is “value-added”.

24. Value-Added Observations • Note that almost everything we buy is “value-added”. • Note also that the price charged for adding value is substantially more than the price for the raw commodity

25. FOOD CHANNELS • There are basically 2 channels in food distribution 1)Retail-the goal is to give the consumer what they want at a price they are willing to pay. Examples are further processing over commodities. 2)Food Service (Restaurants)-Make food products that address restaurant concerns such as food safety and the shortage of good labor (Precooked, marinated, seasoned etc). 3)Sales over websites are coming along.

26. THE RETAIL MARKET • This channel represents food stores like Walmart, Kroger , Dillons, etc • They are very consumer oriented • Heavy up on marketing; All trying to get consumers to buy their product. • Crowded; Competitive • There are just too many choices to make.

27. Photo courtesy of USDA

28. THE FOOD SERVICE CHANNEL • Includes fast food up to fine table clothe restaurants • Fastest growing channel. • Use brokers from large full service distributors like Sysco and U.S. FoodService to brokers that just take orders. • The brokers do the local selling and can go from just taking orders to delivery. • Not heavily marketing oriented

29. Photo courtesy of National Restaurant Assoc.

30. FOOD SERVICE IS FERTILE GROUND • More people eating out than ever before. • Retail is very crowded and competitive. • Restaurants want items that reduce the probability of a food safety incident and items that reduce the labor “in the backroom”. (e.g. precooked, preportioned, premarinated etc). • Let me explain.

31. Food Service Sales • Since the 1970s, the percentage of food eaten away from home has been steadily increasing. In 1999, 49% of the food dollar was spent in food service, 41% was spent in retail stores and 10% at other food retailers (c-stores, warehouse clubs). • The food service channel a $370.9 B a year business.

32. Age Group 24 & under 25-34 35-44 45-54 55-64 64 + FS Spending/ year $4,600 $6,500 $8,200 $9,800 $7,900 $5,100 Who is Paying to Eat in Food Service?

33. Generation Swing/WWII (55+) Baby Boomers (34-55) Gen-Xers (25-34) Gen-Y (18-24) Attitude “I’m glad I don’t need to cook anymore” “I wish I had time to cook” “What, me cook?” “What’s cooking?” Generational Attitudes Toward Cooking

34. Implication; The overall spending per age group may increase as the Gen-Xers and Gen-Ys age.

35. TODAY’S CONSUMERS • Are more demanding • Are more adventurous in restaurants • Have more disposable income. • Older are sick of self denial and younger lead a more decadent life style. • Time starved; Want it “now” Drive through confessional in California “Toot and tell or go to Hell” Starbucks Kiosk in California churches

36. Restaurant Impact Areas • Labor -High turnover (96-100% annually) -Wages /Benefits are up -Quality of workforce is down. • Food Safety -Fear of E Coli/Listeria- lawsuits -Linked to labor quality

37. Restaurants Demanding • Reduced labor in the kitchen-preportioned, seasoned, marinaded, premade. They want to heat and serve. • Precooked for food safety reasons • Want creative menu ideas and novel cooking methods. “Show me something new”

39. HOW TO DO VALUE-ADDED PRODUCTS • An understanding of the business • An understanding of the customer • An understanding of the market/ demographics • Have a creative idea.

40. UNDERSTANDING THE BUSINESS • Government Regulations. • Getting capital to start a business • Distribution network • Sales strategies

41. UNDERSTANDING THE CUSTOMER • Fill a customer need • Today’s Consumers demand 1)Convenience-time starved 2)Value-higher quality at fair price 3)Decadence-fairly strong economy and sick of self-denial. 4)Want leisure and fun

42. UNDERSTANDING THE MARKET • Who is your competition ? • How to label, package etc ? • What is a fair price ? • How will people know about your product and where to get it?

43. HAVE A CREATIVE IDEA • Some people have ability for this. • Have brainstorming sessions • Look at the dairy field-The mother of Creativity. • Go to other places/things,

44. WHERE DO IDEAS COME FROM? • Some people just have the ability to look at something and think beyond it. • Ask people who use similar items what they want. • “Brainstorming” sessions if conducted properly can be fruitful.

45. Innovation Fate • What is the success rate of new concepts? *40% rejected by informal evaluation -Technical, legal, economic problems *41% rejected after formal testing -Market tests ONLY 19% ever get accepted.

46. CASHING IN ON VALUE-ADDED • High speed, efficient food processing equipment is expensive but saves on labor in the long run.. • Farmers have been known to form cooperatives to pool their raw commodities and control the processing aspect to their benefit • Examples are Ocean Spray, Welch’s, Sunkist in the beverage industry.

47. HOW TO DO VALUE-ADDED • First, think of the area you want to work in. For example, fruit farmers may want to produce beverages or vegetable farmers may want to produce soups. • Second, think of how you can do it better, differently or cheaper than the competition in the market. Technology and creativity are the keys

48. DETAILS OF PRODUCT DEVELOPMENT • Figure 1 (the next slide) shows all the different things one must be cognizant of as they develop a new product. • Think of each one of these links as a chain where a chain is as strong as its weakest link. Larger food companies are always determining their weakest link and strengthening it- Called realignment or refocusing.

50. FOOD PRODUCT DEVELOPMENT • The next slide (figure 3) shows the steps to be taken in new product development. • This is a theoretical chart and sometimes shortcuts can be taken if you know the process and the ramifications of your decisions. • For example, line extensions in an already successful company can go from concept to prototype to full scale production (3 steps) in a matter of weeks.