Distribution of Organic Food EevaLiisa Kauhanen Kymenlaakso University

Distribution of Organic Food Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Basic Structure of Distribution Decision of the basic structure: centralized vs. decentralized distribution • centralized distribution retailers farms wholesaler; slaughterhouse sorting, combining, packing collection from farms transporting to outlets c o n s restaurants u m e café´s etc. selling to consumers r s Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

• locally centralized distribution farmers´ market; farm slaughter house organic farms can organize a common outlet (farmers´market) for marketing their products locally Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

• decentralized distribution stores restaurants café´s etc. market places farmers sell their products without any wholesaler to retailers, restaurants, cafe´s etc. or directly to consumers Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Characteristics of different distribution channels • centralized distribution; disadvantages – several stages in the supply chain several handlings of the goods (loadings, unloadings, packaking or moving from a package to another) costs of handling can grow high; the goods can be damaged – in a long chain the distribution takes time freshness can not be quaranteed Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Characteristics of different distribution channels • centralized distribution; advantages – transport costs can be minimized by combining deliveries – quality controll is equal – information flows (eg. marketing) and money flows can be integrated effectiveness Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Characteristics of different distribution channels • decentralized distribution; disadvantages – total amount of transport can grow high – quality control can vary at different producers – producers are responsible for marketing (alone or in co-operation with others) lacking know-how can be a problem Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Characteristics of different distribution channels • decentralized distribution; advantages – close contact between producers and consumers instant feedback better knowledge of customers´ demands and satisfaction; customers know exactly where the products come from – no extra handling of goods small risk of damages – freshness can better be quaranteed Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Organic Food Markets • More than 95 % of all organic food is sold in Europe and Northern America • Big market areas are Germany, Britain, France and Italy • In 2007 the Swiss were buying organic food products by 102 €/per inhabitant per year, the Danish by 80 €, the German by 56 €, the Swedish by 42 € and the Finnish by 15 € • Growing Markets – The value of the organic food markets have been more than doubled since year 2000 – In 2007 the markets of organic food grew by 10 % being more than 62 million euros – In Britain the demand of organic food products grew by 22 % in 2006 – in Germany the demand grew by 18 % both in 2006 and 2007 – Other countries of rapidly growing markets are Poland, Hungary, Czech Republic and Slovakia Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Characteristics of Organic Food Markets – Consumers regard the products as expensive in order to shave the prices the distribution should be more effective so that distribution costs were lower – Availability of the products is not good enough especially at small places distribution should be better organized Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Organic Food Markets in Finland • The demand of organic food has been growing slightly faster than the total demand of food • The demand of organic grew by 10 % from 2006 to 2007 • Special organic food shops, marketplaces, farm shops and co-operative shops had a market share of 12 -14 % of the total organic food markets in 2007 Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Organic Food Markets in Finland • Organic food is sold in nearly all stores • Basic products are milk, eggs, flour, flakes, bread, vegetables, roots, fruits (mostly imported) • Store chains have a selection of 250 – 500 different organic food products and seasonally up to 700 products • All store chains offer to customers the possibility to order organic food products • Organic product shops can offer 250 – 3000 different products at one outlet (Luonnotar, Ruohonjuuri, Satumarja) • Some shops sell special products which are not availale elsewhere (for example products of small producers) • Farmers´markets are selling products of local producers • Vegetables and roots are also sold at market places Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Characteristics of Organic Food Markets in Finland • The organic food markets in Finland are very centralized highest demand is in southern Finland • 26 % of the organic food is sold in Helsinki (Helsinki´s market share of all sold food is 19 %) • What are the challenges of the market structure for the organic food producers? How are the markets in other countries? Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Characteristics of Organic Food Markets in Finland • Demand is higher than supply – market share is 0, 5 – 5 % (depending on product group) – the amount of organic producers is not growing because producers find it difficult to maintain profitability in order to be attractive organic agriculture should be at least as profitable as other agriculture Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Characteristics of Organic Food Markets in Finland • The demand of organic meat grew 27 % in 2007 but the market share is only 0, 6 % of all meat • Production of organic meat struggles with profitability problems • The price of organic meat must get lowered by improving the supply chain distribution and transport. • Refining of organic meat products must be improved and more products launched. • Products should be available for all, not only for rich people. Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Efforts to Rationalize Distribution • Cattle Market – A market place in the Internet – For selling and buying animals and organic forage Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Distribution Costs • Costs of a certain distribution chain can be determined by ABC-method (Activity Based Costing) • In ABC-costing the cost of every single action in the distribution chain must be specified possible to compare the costs of different distribution channels and different modes of transport Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Marketing Costs • To make a product well-known and to make people buy the product is very expensive • In order to reduce the costs many organic food producers co-operate and market as well as sell their products together • lower costs lower consumer prices more customers higher turnover OR lower costs better cover higher profits Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Efforts to Rationalize Distribution • Maa- ja Metsätaloustuottajain Keskusliitto, MTK (Central Union of Agricultural Producers and Forest Owners) has a remarkable role in developing organic agriculture • so far MTK has put emphasis on non-organic cultivation but there has been growing demands for putting more weight on organic agriculture not only on cultivation and stock raising but more on refining, branding, marketing and distribution of the products Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Efforts to Rationalize Distribution • one possibility to raise effectiveness is to establish medium sized refining companies in the countryside collection of the raw material would be easier and the need for long distance collection transport could be avoided – e. g. the high price of organic milk is mainly due to long collection distances • these companies would be able to satisfy the growing domestic demand also export to other European countries where the markets are growing too Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Efforts to Rationalize Distribution Co-operative marketing • Co-operative marketing can be organized by establishing own shops or advertising together • An example of co-operative Marketing in Internet • Next slide: An example of co-operative marketing in Kouvola region in Finland Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

AN EXAMPLE OF A NETWORK Organic cattle farm consumers Helsingin Mylly Oy (Helsinki´s Mill Ltd) producers retailers mug grinding, packing rye, wheat, oat Tuomo`s farm Mooseksen Vilja (Mooses´ Corn) a farm Mooses´ own outlet consumers Multahovin Mylly Ky (Multahovi´s Flour Mill) speltti producers retailers grinding, packing Wholesailers speltti cookies Tuomon Luomu (Tuomo´s Organic) an organic bakery and café Other producers Tuomon Luomu´s own summer consumers shop Other outlets consumers Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Efforts to Rationalize Distribution • Organic Food producers are marketing their products abroad in co-operation by Luomuvientirengas (Organic Food Finland) http: //www. organic-finland. com/index. html Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Efforts to Rationalize Distribution • naturally it is most reasonable to aim at local production and local markets thus minimizing the need of transport in the supply chain it is quite senseless to transport food hundreds of kilometers if it is possible to get it from local farms and refiners All efforts to reduce heavy traffic are welcome. Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

a small brewery makes the beer PUHDAS PELTO (Clean Field) – AN EXAMPLE OF A LOCAL NETWORK raw material for beer corn forage outlets nearby muck for fertilizer farm slaugterhouse own co-operative shop and restaurant; local and long distance customers own mill grinds the corn paper bags for flour Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Brands and Marketing Organic Food in Finland Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Brand • For a customer brand is a guarantee of – Product quality – Good service – Familiarity • Brand represents – Status – Quality promises – Service promises Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Brand • For a company brand is – A piece of organic culture – A piece of image – Foremarketer – A good way to get customers committed to product / company • Brand loyalty varies with products between 20 – 75 % being very strong in e. g. cars, beer and detergents • Brand loyalty in food ? ? ? – Brand can. Eeva-Liisa mean. Kauhanen, more. Kymenlaakso sales!University of Applied Sciences, Finland

Brands and Images • ”People are not buying names, they are buying products” – yes, but a good name can awaken the interest and can also more easily become a good, familiar name with good image • To achieve an identity in the markets, the selection of a company name or product name should be a critical strategic decision • People want to assosiate themselves with the images of things they like – and they are willing to pay extra for it • What kind of images are or could be related to organic food products? Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

A Good Brand Name • A company name should represent stability and integrity • A product name should tell something about the product – Try to find examples of (organic food) product names that tell/do not tell about the product! • Avoid negative imagery (weight-loss candy named AYDS…) • Do not trust combinations of letters – There are some famous brands like IBM – can you remember others? Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

A Good Brand Name • Historically some products that have named for a person have achieved a high level of recognition but this strategy has its risks too – Yves Rocher… • Cheerful and rhytmich names have been successful – Chevrolet Impala, Rybb&Decker´s… Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Labels of Organic Food • To make a product well-known and to make it easier to market there is several different distinctive signs certifying the products as organic food products • Organic Food labels: • Some products with labels: Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Entering the International Markets • It is difficult to get the markets abroad • Small producers must co-operate to market their products abroad and to export the products • Producers are trying to get their products well-known internationally – they are creating brands • An example of co-operative exporting is Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Potential International Brands? HELSINKI MILLS LTD KIANTAMA Kankaisten Öljykasvit Oy KOIVULAN BAKERIES LTD NORRGÅRD LTD Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Who Buys Organic Food? • What kind of consumers are organic food buyers? Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

What Are the Reasons for Buying Organic Food? Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Co-operation, combined deliveries and rationalized supply chain save both the nature and expencies Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland

Thank you for your attention! Eeva-Liisa Kauhanen, Kymenlaakso University of Applied Sciences, Finland