The snack food production industry may not be recession-proof but the food business is; since people have to eat. Snack food manufacturers know that people can choose not to eat their products. Likewise, manufacturers have employed a substantial amount of expenditures and resources in regards to branding, technology, and capital. These investments, coupled with high customer loyalty, have contributed to sales growth and high profit margins.

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During the current recession, customers are increasingly becoming price sensitive and more likely to purchase on promotion, shift to private labels, and/or simply reduce snack spending. Fluctuating commodity costs are also a challenge for snack food manufacturers. However, strong brand loyalty coupled with aggressive marketing tactics and new product innovations should help counter the negative implications of the current crisis.

Since the US snack food production industry is mature and saturated, competition is intense. Likewise, below are the key success factors required for manufacturers to either maintain or grow share.

Ability to secure key input supply contracts – to aid production planning and reduce procurement costs, manufacturers need reliable contracts with suppliers of key raw inputs including guaranteed supplies at fixed prices.

Ability to pass on price increases – for supplies without fixed prices, manufacturers need to continue to pass on unexpected cost increases to maintain profitability. The major players have been passing on cost increases to offset high energy and commodity prices due to the high brand value of their products. However, supermarkets and grocery stores (due to their increasing power from consolidation) could resist price increases and stock more of their own private labels to enhance profitability.

Ability to secure coveted shelf space – to maximize retail sales, manufacturers must continue to seek attractive shelf space for their products. They should also expand (or continue expansion) into other distribution channels which include drug and discount stores, convenience stores, and other locations with high foot traffic.

Ability to change via innovation and differentiation – to maintain or grow share, manufacturers must differentiate, anticipate, and respond to changes in both consumer preferences and dietary trends. Population ethnicity and demographic changes have resulted in new preferences and tastes, requiring manufacturers to alter their product lines to meet these needs; by using product, healthier ingredients, packaging, marketing, labeling, and other innovations.

For example, consumers are becoming more health conscious and pressed for time and are increasing their consumption of convenient, healthy, and/or tasty snacks. As a result, the fruit and nut snack bars segment combined with low-sodium, low-fat, and organic snack food represent a growth opportunity.

Ability to deal with consumer price sensitivity – the price sensitivity of consumers varies between product segments. Brand loyal customers are not as sensitive to price changes due to the associated high product quality, image, and reputation perceptions. Likewise, products such as Doritos and Oreo command a premium price. However, price increases for product segments that are not perceived as high quality could result in customer switching to cheaper alternatives; including private labels and/or cheaper substitute products such as chocolate and muffins.

Ability to grow internationally – since the saturated domestic market could eventually result in stagnate profit margins, manufacturers should continue to seek growth in Canada, Mexico, Japan, Korea, Taiwan, Philippines, and other countries.

The recession should not impact the snack food production industry too much. However, manufacturers must continue to innovate, differentiate, receive favorable supplier terms, seek international growth, and secure attractive distribution placement. As a result, the manufacturers will have a better chance of maintaining or growing share, sales, and/or margin over the long term.