This Too Shall Pass
or "What were we thinking?"

Volume 134, No. 5  - Friday, July 31, 2009

I mean, did we really believe that the days of consumers paying 40 bucks a pound for cheese without batting an eyelash would last forever? Whether good or bad, “this too shall pass.”

The business cycle is a cycle, it has an up phase and a down phase. The more you artificially force one phase, the stronger the opposite.

In 2008, the highest prices anyone had seen in milk for a very long time (adjusted for inflation) followed one of the lowest and longest lasting lows. The Economy of 2006 to Fall, 2008, artificially propped up by funny financing, has led to the worst slide in 100 years, maybe the worst ever.

Certainly, the first post-Internet Global Financial Crisis. It is also the first where even luxury foods have been affected. First time ever! In the last “corrections,” luxury foods were the last luxury people gave up, and the first luxury they returned to.

What happened this time is, in part, our faults. We fell for the sweet lie that the good times would never end. I actually heard intelligent, mature people saying they had no problem at all dropping 40 bucks a pound on a cheese, (I still question how often they dropped that much!), and farmers and cheese makers repeating it to justify the prices they felt they needed to charge.

The breakpoint in pricing, that magic point in marketing where the price is as high as you can get it before people start thinking twice was $14.99 in most of the country before the fall, it is $9.99 in most urban markets now, and in more competitive markets it has dropped below $6. Forty, forget about it! How far and fast we have fallen.

In addition, buyers have gone conservative overnight. Everyone is a discounter, even some divisions of the foremost “natural” food store chain, who in the past have been the go-to stores for specialty cheese sales, have taken to buying in on deals only, to get the lowest price they can on the shelf, with no intention of slotting it on the shelf after.

I feel their pain, but is abandoning what got you here the way to go? At what point does emulating your competition turn you into the competition?

People are being hurt by this. Companies cannot continue to discount without reaping the follow up benefits. Industry insiders say that if you are doing less than 20 percent less than last year you are doing well. This is not good for long-term survival, and no one I know knows for sure when it will stop.

The general feeling is that we have stabilized, though insiders warn of the potential for our over-indulgence in credit cards could still surface and rock the boat.

Over the past 10 years, I have advised a strategy of what a friend, Neville McNaughton, coined as “Import Replacement.” The goal was to make high quality specialty cheeses at fair prices, just below the European imports, in time for when the price supports stopped and the dollar devalued so they had to raise their prices.

That was before the Fall. It’s too late! Currently European prices are dropping, as warehouses are over packed due to the slowdown.

Though the market seems to be stabilizing, there are few indications of where things are going, and premature to make any pronouncements, but one thing is sure, this too shall pass! The longer the down, the better the upswing will be, but I pray we will never again be talking about 40 bucks a pound seriously again.

What is needed is smaller swings, less variation, so smaller specialty companies can survive. We also need buyers to get the courage to start looking at new products again. You can choke yourself by being too conservative.

What is needed is not and has never been low price, but better value. Producers were inefficient. They had trouble making money even at the high prices before the fall. Mostly, people overproduced and tied up too much money in inventory.

Even the market leader Parrano® has been showing up in stores so aged it is close to being Robusta®, I am told.
Don’t tell me no one could see it coming; some producers had been expecting this and had adjusted their purchasing and production down in 2008, though no one could have expected the kind of drop we had. How did they know? Perhaps they knew the old saw as well, “this too shall pass” and took it seriously.

Business is ruled by physical, aka natural, laws, like everything else. First there is only so much to go around.

Secondly, the greater the force, the stronger the correction will have to be to derail it, and the third says what goes around comes around, in other words, there is this thing called the business cycle: read Sir Isaac Newton.

Good news is that if we have truly stabilized, the next phase is upward. When it will start is anyone’s guess. Keep meeting and greeting until it does, so when they are finally ready to buy again, you are there! r

Dan Strongin is managing partner and owner of Edible Solutions, a consulting company focused on helping companies making great food make a profit. He will be writing a monthly column in Cheese Reporter. Strongin can be reached via phone at (510) 224-0493, or via e-mail at dan@danstrongin.com

 

Other Strongin Articles written for Cheese Reporter

dot Marketing Language That Resonates
dot When Will We Ever Learn?
dot Cheese Competitions In The Context Of Marketing

dot Economy
dot Even The Best Laid Plans Go Astray
dot Root Causes: Communication
dot Partners
dot Diamond Cutting:
dot
It's What You Don't Know That Can Hurt You
dot Integrity and Ethics
dot Pricing:  The Perceived Value
Designing the Effective Sell Sheet
Common Sense
It All Begins in The Mouth
Of Cars...

The Gathering Storm
As Our Industry Evolves, So Should Our Terminology:

Other Cheese Reporter Guest Columnists
Visit John Umhoefer
Visit Neville McNaughton

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