Food Firms Have Appetite for Net

Recipes, video games, coupons and advice columns. You name it, food companies are using it to get consumers’ attention on the Internet.

Their goal is not to cut out the middleman and sell directly to consumers. Rather, these old-line companies are trying to identify their very best customers and cultivate greater loyalty among others who might buy their products only occasionally.

The problem, analysts say, is most major food makers are going about it the wrong way. Most are pouring money into banner advertising, site sponsorship and splashy Web sites--tactics that analysts say are almost useless. What they should be doing, they say, is mining the vast stores of consumer behavior data that the Web can provide.

“They are not exploiting [the Internet] effectively yet,” said Robert Rubin, a branding analyst with Forrester Research. “I think there’s a lot of experimenting going on.”

Nabisco Holdings Corp., for example has turned its Nabiscoworld.com and Candystand.com into elaborate gaming sites where customers can play virtual pool, mini-golf, chess or power bike.

It hopes to make its branded sites into destinations for teenagers and young adults who eat its Oreos and Lifesavers. Company officials brag that Nabiscoworld and Candystand get more than 3 million hits a month through its links with ESPN.com and other popular sports sites.

But analysts wonder how long that will last. Typically, they say, only the most fanatical customers check out Web sites for individual brands, no matter how clearly it is printed on packaging or in advertising.

And other than logging the number of clicks on their Web site or ads, most food companies, such as Kraft Foods Inc., Unilever, Nestle USA Inc. and Campbell Soup Co., can’t tell you how these Net ventures have affected sales, even though they have cost millions of dollars and account for about 3% of most marketing budgets.

“The bottom line is I can’t point to any evidence at the moment that links our online advertising or promotion to any significant measurable change in our sales,” said Anthony Romeo, Unilever vice president of strategy.

But he said they intend to keep trying to exploit the Net. Indeed, analysts say, once food makers get a handle on the technology and its potential, the payoffs of the Net are expected to be huge, enabling them to come up with more customized offerings, revive old brands, trim advertising costs and launch new products more quickly and effectively.

Quaker Oats Co. recently brought its Quisp cereal, a ‘70s favorite, back into national distribution via NetGrocer.com after the brand, which was selling in a few markets, proved popular with nostalgic Gen-Xers.

To stem sales losses, Campbell Soup has begun sending e-mail recipes in hopes of getting consumers to find new uses for its old-line products and add them to their shopping carts more often.

And manufacturers of such staples as diapers and dog food are working with online grocers to develop automatic replenishment programs that ship replacements of these products to consumers every few weeks.

But the biggest payoff from the Net won’t be in Internet sales. Online grocery sales are expected to reach $7.5 billion in 2003, a paltry 1% of all grocery sales.

The real power of the Internet, analysts say, is how it enables manufacturers to interact with consumers and gather detailed information about their habits and preferences, which can be used in tailoring products and offerings, encouraging more brand loyalty.

“If we can identify our most valuable consumers and concentrate our efforts online and offline on building better relationships with them it will pay off in the long run,” Romeo said.

Many are backing away from the hard sell and are trying to position themselves as more of a lifestyle coach, dishing out advice and steering customers to products, not all of them their own.

Unilever, for example, is launching a beauty site with IVillage.com to provide beauty and health advice. In addition to recommending its own personal-care products such as Dove soap, it will also promote products by other manufacturers.

Glendale-based Nestle USA has developed several new content-only sites, such as VeryBestBaby.com, VeryBestBaking.com and VeryBestPet.com, which deliver expert advice, recipes, resources and other information packaged along with an e-store that links consumers to NetGrocer.com.

“People don’t want to log on and go to a Butterfinger Web site,” said Nestle USA Chief Executive Joe Weller. “What they really want is information.”

Instead of aggressively promoting brands to everyone, Nestle, Unilever and others say they are trying to determine their most valuable shoppers so they don’t waste precious advertising dollars on the truly hard-sells.

For example, a company could choose not to display an online laundry-detergent ad to a customer the week after he or she has purchased soap or they could choose to advertise juice boxes only to families with young children.

Online grocers can also help manufacturers distribute new product samples to shoppers who buy a certain type of product on a regular basis, and even test products before they hit brick-and-mortar stores.

But that’s about all online grocers can do for manufacturers at this stage of the game, analysts say.

Web grocers haven’t yet built sophisticated customer databases to share with their consumer goods partners. They can only tell companies which people have bought their products and what else was in their electronic basket when they bought it. They don’t know what kind of households are buying that product or how often that family purchases that product.

“It’s a fine line, “ said Jesse Edelman, director of strategic alliances for Webvan Group Inc. “We don’t want consumers to feel like we’re tracking their behavior and only offering them certain deals.”

And manufacturers are only now beginning to build databases of their strongest customers.

To avoid privacy conflicts, some are turning to independent Web sites to test new products and gather information. At some of these sites, participants get free samples and provide voluntary information about their household and preferences.

Eventually, some analysts speculate, the old-line food business could be entirely transformed by the Internet, with the entrenched brand management structure being replaced by teams that focus on certain types of consumers, such as suburban families or career-focused singles.

And customers themselves could have a greater say in how products are developed, said Alice Richter, partner in charge of the food and beverage industry for the KPMG management consulting firm, right down to the color of a new ketchup or the shape of new packaging.

“B2C is going to be a challenge for most food companies,” Richter said, “but the payback is they’ll get to know their customers better and will be able to communicate with them much better.”

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Cooking Up a Web Strategy

Old-line food companies are trying to exploit the Internet’s potential using different strategies. Industrywide, companies spend an average of 3% of their marketing budgets on Internet-related items, which include advertising, contests and other promotions.

Advertising Spending

Online ad expenditures still lag far behind other traditional media. Here is a look at how six major food companies* spent their ad dollars in the first half of this year:

Television: 70.9%

Magazines: 25.3%

Radio: 1.8%

Newspapers: 1.1%

Online: 0.6%

Outdoor: 0.3%

*Advertising expenditures by medium for Nabisco, Nestle, Quaker Oats, Unilever, Campbell Soup and Philip Morris, parent of Kraft.

Researched by NONA YATES/Los Angeles Times

Sources: Competitive Media Reporting, Bloomberg News, Hoovers