SOURCING MEALS

PALMYRA, Pa. -- As the home-meal replacement trend gathers momentum, retailers and suppliers need to forge relationships that will keep them both on the right track -- the one that leads to success.That's what one manufacturer of fresh, never-frozen meal components strongly believes.The HMR market is growing fast, but the question is still whether it's going to be captured by retailers or food-service

PALMYRA, Pa. -- As the home-meal replacement trend gathers momentum, retailers and suppliers need to forge relationships that will keep them both on the right track -- the one that leads to success.

That's what one manufacturer of fresh, never-frozen meal components strongly believes.

The HMR market is growing fast, but the question is still whether it's going to be captured by retailers or food-service operators, said Wendie DiMatteo Holsinger, chief executive officer of A.S.K. Foods here, who talked to SN about the state of HMR and how the roles of the manufacturer and retailer are taking shape.

"It would be a shame if retailers were unsuccessful in gaining this expanding market, when, after all, they have consumers captured once a week anyway," DiMatteo Holsinger said. While she emphasized that supermarkets are well-positioned to profit from the HMR trend, she pointed out the food-service industry is also trying to provide consumers with HMR choices, using paths such as takeout and delivery.

Since the HMR phenomenon is relatively new to everybody, retailers and suppliers can help themselves best by working closely with each other to find what works, DiMatteo Holsinger said.

For example, manufacturers who have been operating in the HMR arena for a while have gained general knowledge they can share with their retail accounts.

And spreading valuable practical knowledge around would be good for the industry at large, according to DiMatteo Holsinger. She told SN she's found that many retailers are laboring under misconceptions that may be slowing them down.

Some retailers, for instance, have the idea that quality is secondary, that they don't have to keep the retail price competitive and that the maintenance of an HMR display need not be given high priority.

Some alliances created between suppliers, retailers and other segments of the industry

have brought distinctive, quality products to the market, untangling knots in the distribution chain, she said. However, many retailers are reluctant to make a long-term commitment, and long-term commitment is a prerequisite to succeeding.

In business for 50 years, A.S.K. from the beginning has produced all-natural, fresh refrigerated foods with no preservatives, and frozen food as well. Growth of the fresh, never-frozen lines started to take off about 10 years ago, DiMatteo Holsinger noted. In 1990, the company built a facility dedicated to the production of those lines and, two years ago, it expanded that facility to accommodate increased production.

In the interview with SN, DiMatteo Holsinger shared much of the knowledge she has gained as her company has headed down the path after the HMR market. The highlights follow.

SN: What are the big challenges for meals suppliers in dealing with supermarkets?

DH: Convincing them of the breadth of an HMR project and that the uniqueness of the product requires very specialized overall handling, from the warehouse to the time the consumer makes a purchase.

There's been a lot of focus on shorter shelf life, but that's only one component. It really involves understanding the big picture in terms of things that are not typical right now in supermarket buying. Retailers need to see the differences, and not fight them.

For example, they need to really explore how they can get set up for more frequent deliveries, how to get the space in the warehouse, how to get their store-level people to order more frequently.

Because the hype has been so big on HMR -- and I think consumer demand is there also -- some chains believe they should get whatever product they can, regardless of the quality, and if it's a meal, it will sell. And then they're surprised, they're disappointed with the numbers.

I believe the quality of the food is probably the crucial issue. The quality of the food must be superior in order to get repeat sales and repeat sales are what will make the program work.

At the same time, they need to stay competitive [with pricing].

SN: Are they setting their prices too high, to get a high margin?

DH: This is obviously a very sensitive topic for retailers and manufacturers alike. While HMR research tends to point to prices as a secondary issue for the consumer, it still plays a significant role, particularly with the first-time purchasers.

On both sides [retail and supply], there needs to be an upfront financial investment that cannot totally be tied to purchase price.

For example, there is "shrink" involved for the retailer but adding that to the product price may often outprice it [in the market]. There is only so much a consumer will pay for a side of mashed potatoes.

Likewise, the manufacturer cannot bundle all start-up costs for equipment and product development into its product price. We must make that long-term commitment financially, and believe that our return on investment will be there in the future.

SN: What about displays and merchandising?

DH: The importance of discipline and maintaining the HMR display cannot be overemphasized. Retailers have to find a champion at store level to make sure the execution of the HMR program is carried out.

They need to use a planogram and keep the display maintained so it looks upscale. No out-of-codes. The retail environment is not a place where we've developed consumer confidence [in prepared foods]. We need to give the display a look that helps credibility.

We actually have started taking pictures store by store as we set up a display. We give them to the deli manager, and say, "This is what it should look like." We tell the deli manager to remember the picture when the display starts looking different. It reminds him, for instance, that there were eight facings, not two.

SN: What about running out of product? We've all heard at conferences that that's all right.

DH: I believe it's OK to be out of a product, but there's a thin line. I see retailers being very conservative because they're afraid of shrink.

The consumer still needs to be able to walk into that store any day and have a meal selection. It might be all right to be out of one side dish of four, because they'd still have side dishes to choose from. Or you could be out of one entree, but only one out of five.

SN: What are the challenges of marketing HMR products?

DH: We tend to think if we have a good product, we can just concentrate on price points and margin and forget about putting a strong marketing program behind it. We market all over the place, with deli salads and every other thing, and forget that HMR needs the same kind of emphasis, with the same kind of contests and couponing.

SN: What can the retailer and the supplier do to build credibility among consumers?

DH: Sample, sample, sample. We need to get consumers to taste the product, and tell them how to use it. HMR is new to consumers and we're hitting a nerve; it's a sensitive issue when you try to replace Mom's cooking. Consumers have to feel the product is wholesome and worthy of their families. I just can't emphasize enough that the product's quality has to be superior and that we have to let the consumer know it.

As manufacturers, we have to practice continuous improvement so we can exceed the consumers' expectations. But the retailer also needs to make it look good with well-maintained displays. Also, the more consumers know about the quality, the ingredients and the care taken in making the product, the better.

We offer manuals to educate store employees so they can answer questions. They can pull out the manual if necessary or call our 800 number. And we supply little, bulleted handouts; not too much information, or they won't read it.

SN: About the distribution challenge, how far afield do you deliver and how is it done?

DH: Many people have indicated distribution is problematic, so we've focused on maximizing options for delivery. We use designated carriers in some instances that go directly to locations; we also use our own trucks.

We also use common carriers in some instances, where we're able to work out some good turnarounds. And we've focused on backhauling, where we can bring back a truckfull, which keeps costs down. We've also worked closely with distributors. We deliver to a certain point, and then they take product to another point. We've also partnered a little with some other people such as meat suppliers, who were able to combine loads.

SN: What's the first step in working with a retailer on HMR products?

DH: What we've learned at A.S.K. is that the planning process has to be very flexible. We focus on an initial meeting in which we delineate the retailer's commitment, the time frame that they're willing to work on, their responsibility and what part falls on our shoulders. That planning makes a big difference in the amount of time from start to finish.

SN: How is the time frame set?

DH: That's almost an allocation-of-resources issue. If they're willing to put a key person on to really make this project happen quickly, we can cut that time from start to finish to a very reasonable period.

On the other hand, if HMR is a side issue assigned to someone who is very busy, so that it really is going to require months of time to get approvals on things, then it can take a fairly long time to get the product on the shelf.

We work with an account and give them some typical time frames. We can either expedite it, or we can work at a leisurely pace, whatever they want. We've had a short of two months, which I don't recommend, to as long as nine or 12 months of the planning stage.

Some are already committed to the process and want to execute it in a very short time. Sometimes it's motivated by a competitor moving into the marketplace that they know is bringing out HMR.

SN: Would you say it's the worst-case scenario when it's competitor-driven?

DH: Not always. I might have said yes to that in some instances, but lately we've had a few retailers in that situation who became very committed to making the project happen. They allotted weekly time to us. When we sent labels for them to approve, they sent them back. They stayed on the timetable.

SN: So the retailer can dictate the time frame?

DH: The need to partner [within the chain] in a BIG way on this kind of project can't be overestimated. It requires contact with the retail distribution department, the art department. Sometimes [getting into HMR] requires the purchasing of a physical unit to display it. This gets you into the equipment side.

The ability to have a multifaceted team willing to work together, I think, can make the biggest difference in expediting the project in a timely and successful manner.

SN: Does one program fit all?

DH: No. It's very different from chain to chain. The general research still needs to be applied to a retailer's specific area, specific commitment and specific setup.

It is, I think, the one variable that perhaps hasn't been emphasized enough. We need to tell all retailers, "You really do need to take all this information back to your company, and look at what you do well and what you don't do well. What is really going to fit?"

SN: How can retailers find that out?

DH: The manufacturer can help them. Because we felt there was so little known about HMR, we set up a fairly comprehensive team to do consumer surveys, and we've decided to offer training, recipe development, nutritional analysis and merchandising. We even do planograms for some of our accounts. We can do the sampling, offer ad support, do store sets.

Some of what we learn from other accounts can be helpful. Obviously, details are confidential, but some of the general things we've learned -- for example, we have seen products that fly and others that don't. We can say what they are and why, but they still have to decide if it would be right for their particular environment.

SN: You do a lot of private label. What about private label vs. brands?

DH: There's a strong advantage to the retailer to have private label -- just as the fresh prepared foods, even fresh fruits, are some of the distinguishing products that will make the consumer shop their stores instead of someone else's.

Because that's become more true over the past few years, a private-label product enables a retailer to do something different, to have a philosophy that's slightly different, to specify the exact product he wants, to work on price points. Branded products will be available to the chain next door, so they suddenly become me-too items in a category that otherwise could be unique.

SN: What do you see ahead for HMR and vendor-retailer relationships; and what would you hope for?

DH: I hope the learning curve will be shortened, so we're able to overcome very quickly some of the obstacles that right now are taking great amounts of energy and time. The reality is this: You'll see a falling out of retailers and of manufacturers, too, who haven't made a commitment and then realize they shouldn't be doing HMR.

There are so many ways to go with HMR. Once we get rolling, and put out the fires and know it's going to stay around, then we can start seeing the fun we can have with HMR, what neat things we can do. The possibilities are endless.