A Doom and Bust Cycle for Y2K Suppliers
As anxiety swept the country last year about the frightening fallout from the 2000 computer glitch, sales of freeze-dried products soared at AlpineAire Foods.
“In the summer of ’98 it went bonkers,” recalled Rod Allen, sales manager at AlpineAire, a leading freeze-dried food processor based in Rocklin, Calif. “Our sales tripled.”
Expecting the bonanza to continue through New Year’s 2000 at least, Alpine-Aire built a new facility, nine times the size of its old plant and with twice the canning capacity. Then the bubble burst.
AlpineAire’s sales shrank to pre-Y2K levels. Managers laid off a third of their staff. Their personal incomes plummeted. Now they are barely holding on to the company--thanks only to their devoted non-Y2K customers, most of whom buy the food for camping.
Hundreds of other companies in the self-proclaimed “preparedness industry” have seen a similar boom and bust. They had hoped to cash in on fears that the millennium computer crisis would cause blackouts, power shortages and disruptions in the nation’s food supply. But as public uncertainty ebbed, so did their chances for profit.
“We got bitten by the anti-Y2K bug,” said Allen with a dark chortle.
A few companies were well established. Most, however, started up because they saw a chance to sell everything from $2 flashlights to $800 wood-burning stoves. After raking in the dollars during much of 1998 and early 1999, many have gone out of business or been stuck with inventories they cannot sell or facilities they cannot afford to run.
When the firms first noticed the downturn in demand for goods in March of this year, most hoped that it represented a momentary negative blip. Instead, sales never recovered, signaling that most Americans planned to take the millennium rollover in stride.
Textbook Example of Industry Shakeout
Experts in consumer psychology and marketing suggest that the rise and fall of the preparedness industry provides a textbook example of the shakeout of a market. It also parallels the ebb and flow of the public fears over Y2K.
“There was much more uncertainty a year ago than there is now,” said David Stewart, a consumer psychologist and professor of marketing at USC. “There has been enough reassurance now that the world will not come to an end that people believe it will not be catastrophic when we turn the calendar.”
Recent public opinion polls support the notion that the nation’s anxiety is waning over Y2K--the fear that computers equipped with only two digits will misread 2000 as 1900 and cause havoc with the nation’s air travel, power grid or money supply. In a recent telephone poll by Maritz Marketing Research, 90% of the respondents said they were not concerned about the 2000 computer problem.
Maritz did two rounds of calls to get the 1,000 people needed to assure statistical accuracy. Many callers hung up on poll takers, not even interested in talking about the subject.
“It seems as though they’ve pretty much had it with the whole Y2K thing,” said Maritz marketing specialist Rachel Narsh.
But 30% said that they planned to hedge their bets by stocking up on water or food. Even among this group, however, most clearly are buying those supplies from their grocers, not from Y2K survival outfitters.
In the garages, warehouses and living rooms where the preparedness industry’s executives have their offices, would-be millennium millionaires are still reeling. What started out feeling like the joy ride of a lifetime has ended up like a collision with a Mack truck.
Demand Reached Peak Late Last Year
Demand for their goods reached its peak late last year and early this year. Upward of 10,000 people were showing up at Y2K expos in large cities around the country. A Salt Lake City company called Preparedness Shows had been conducting similar events for about a decade. But the number of vendors and buyers attracted to the events soared because of the Y2K scare. And patrons of the shows reflected a broader, more mainstream population than in previous years. Hoping to capitalize on the sudden frenzy, the company decided to increase the number of shows to 10 in 1999.
“People came in with great urgency and bought a lot. We had never seen that before,” said Len Atencio, director of sales for Preparedness Shows.
At first most of the purchases at the expos were food products with long shelf lives. Then there was a shift to generators and solar energy devices.
But by mid-April the crowds were down to pre-Y2K levels. Sales dried up. And then many vendors stopped coming because they were no longer making enough money to cover their costs.
Jerry Diamond was one of many who saw Y2K as a chance of a lifetime. Before Y2K came along, Diamond had held a string of jobs--cleaning carpets, handling freight, working in factories--none lasting long or providing any chance of striking pay dirt.
For a decade Diamond had his eye on a particular wood-burning stove and oven that can be used for both heating and cooking and costs about $800. So about a year ago he got together with several acquaintances and placed an order for the stoves large enough to get a special dealer’s rate. Then he started marketing them through a religious newsletter called “Prophesy Club.” To his surprise, sales went well and he started selling at the big Y2K shows.
At the December show in Denver, which attracted more than 10,000 people, Diamond sold 20 stoves and started to believe that he had hit the big time. But within a few months the frenzy was over.
“It’s just been hanging on by the skin of your teeth since then,” he said, his voice heavy with disappointment.
Interest had shrunk so much that by this spring he sold only one stove at a show in St. Louis.
“I’ve got phone bills. Advertising we haven’t paid up. It’s been difficult,” said Diamond, who runs his business out of his home in the tiny town of Denison in northeastern Kansas.
Those bitten by this anti-Y2K bug blamed government officials, who first fanned the flames of the Y2K scare and then doused them. They also criticized the media, which switched from publishing and broadcasting alarmist stories in 1998 to downplaying the problem early this spring.
President Clinton and John Koskinen, chairman of his Y2K council, have led the chorus reassuring Americans about the country’s general readiness for the new year.
More damaging for the preparedness industry, Sen. Robert F. Bennett changed his mind. The Utah Republican, who chairs the Senate special Y2K committee and whose Mormon upbringing gives him special credibility with survivalists, traded in his grim predictions in early March for more upbeat assessments.
“In this country, we will have a bump in the road, but we will not be crippled and it will not last a very long time,” he said.
The preparedness industry was not alone in overestimating the profit potential of Y2K. Law firms across the country set up Y2K operations to handle what they expected to be an avalanche of lawsuits. Only a few have been filed.
“People thought it would be a real cash cow,” said Larry Eisenstein, head of the Y2K task force for the Washington law firm of Swidler Berlin Shereff Friedman, LLP. “It has not been.”
Clearly, Y2K has been fantastically profitable for some companies. Computer and engineering consulting firms have profited handsomely by peddling their skills to prevent what could be devastatingly expensive Y2K computer crashes. And most companies have invested billions of dollars in new computers to avoid the potential glitch--and improve computer security.
Generator Sales Were Strong
Firms that rent or sell generators have also made large profits because many businesses are unwilling to risk even a tiny chance that power might be interrupted. For New Year’s weekend alone, most generator companies are charging six months’ rent.
But businesses driven by consumer fear rather than business prudence have suffered. And their backers--who started with dreams of riches--are angry at the government for calming the public.
“I have serious question as to the honesty of what the government is telling the general public,” said Diamond.
“The government is trying to keep us from going into a panic,” said James T. Stevens, the grandfather of the preparedness movement who writes books and speaks about self-reliance. “There’s going to be a lot of anger if indeed we find out there were problems.”
The preparedness industry is also seething at Hollywood for doing too little too late.
Michael Bunker, a Y2K entrepreneur who sells solar battery chargers, solar shortwave radios and Y2K supplies, believes that the NBC made-for-TV thriller “Y2K” presents the only chance for widespread consumer angst to return before the new year.
But the movie is set to air Nov. 21, far too late, he said, to give folks a chance to properly prepare for Y2K by shopping through preparedness outfits like his.
“I think something like that could have been helpful a year ago. Coming two months before New Year’s, all it will do is scare people out of their wits,” Bunker said.
