Saturday, August 25, 2007

Business and Industry Intelligence: Recreational Products

Industry Overview

The US recreational products market, consisting of games consoles and software, traditional toys and games, and sports equipment, generated revenues in 2006 of approximately $57 billion.

The markets most lucrative segment in 2006 was sports equipment, generating total sales of $23.8 billion. This sectors performance has been boosted by the increasing awareness of obesity in the US, as consumers have looked to lead healthier lifestyles and incorporate sports into their daily routine.

The rising price of raw materials and the need to cater to an evolving demographic are placing financial pressures on companies. However, consumers with increasing amounts of disposable income and growing demand for 'gadgets' has seen revenues grow strongly, mitigating these rising costs, providing that companies have managed to diversify in order to meet consumer demand.

Leading companies in this highly competitive industry include Brunswick Corporation, Mattel, EMI Group, and Hasbro. Companies are continuing to outsource manufacture to areas of low cost labor, such as China. Recent news articles have reported the use of unsafe materials in toys made in China and sold in the U.S. This will pose a challenge for Chinese toy makers as they work to overcome this damage to their credibility.

Key Issues

High Input Costs

Companies throughout the US manufacturing sector are experiencing increased costs due to high prices for energy and many raw materials, including base metals and plastic resins. Many markets are highly price competitive, and therefore additional costs cannot be passed onto the customer, detracting from profit margins.

Decline in Sale of Traditional Toys

Manufacturers of traditional toys and games have experienced significant difficulties in recent years, as children are tending to lose interest in traditional toys at an earlier age. Indirect competition from the video and PC gaming sector is thought to be a major reason for the change in market dynamics.

Changing Demographics

The aging population and falling birth rate are reducing consumer bases in key demographics, particularly within the toys and games sector. Companies have been forced to shift the focus of their marketing strategies and product portfolios in order to keep pace with this change in demand.

Significant Trends

South-East Asia

To defend margins, manufacturing companies are outsourcing or relocating manufacturing operations to regions with lower labor costs, most notably South-east Asia, including China and Taiwan. The United States is currently experiencing an influx of Chinese-made goods, especially toys and games, as domestic supply has failed to meet demand.

Merchandising

A major source of revenue within the toy and video game market is gained through the production of products linked to recent film releases or TV shows. For example, in June 2006 Mattel gained a licensing deal with Time Warner to produce toys based on characters and shows from the TV channel Cartoon Network. Such deals are highly lucrative, as the popularity of TV show should assure the sale of the associated product.

Next-Generation Games Consoles

The US games console and software sector is currently undergoing a period of intense competition with the 2006 release of Sonys Playstation 3 and Nintendos Wii third generation consoles. Microsoft has had a significant head start with the release of its third-generation console, the Xbox 360, in Autumn 2005. Although technological features of consoles are important competitive factors within the console gaming sector, of paramount importance is the quality and diversity of games available. An important emerging feature of video gaming is the ability to play online, and therefore software titles with online compatibility will have a significant sales advantage moving forward.

The US recreational products market is valued as the revenues from retail sale of games consoles and games software, traditional toys and games, and sports equipment.

Friday, August 24, 2007

ED LEADER NEWSLETTER #25

Business & Industry Intelligence: Food Processing

Food processing is one of the largest manufacturing sectors in the US; the domestic market for processed and packaged foods reached $429 billion (retail prices) in 2006. It is set to continue growing steadily as demand for processed food remains high. The maturity of the market is encouraging manufacturers to sell directly to restaurants, as well as conventional retail outlets.

The largest sector of the industry is dairy foods, which accounts for 22.8% of revenues, representing $98 billion. A further 12.9% is generated by bakery and cereals, and 11.5% is from chilled foods. Other major sectors include meat, fish and poultry, frozen foods and confectionery.

Cash-rich, time-poor consumers are driving demand for processed convenience foods in the US, where a vast amount of the expenditure on food goes on meals prepared away from home. The progress towards healthier eating, such as reduced consumption of trans-fat, as it is now specified separately in ingredient lists, has encouraged the use of genetically modified supplements. GM crops also increase productivity per hectare and so reduce the cost of raw materials for processed foods.

Leading companies include Unilever, Archer Daniels Midland Company, Kraft Foods, Tyson Foods, and Bunge. Companies have introduced healthier products in response to consumer demand and obesity concerns. Health concern groups and companies have formed alliances to give grants to childrens groups for programs to improve health and nutrition, a move that should enhance public perceptions of the companies. Cost efficiencies have been generated through consolidation, while some larger companies have divested operations to ensure focus on core products.

Key Issues

Consumer Lifestyle - Increasingly time-poor, cash-rich consumers are demanding convenient processed foods with extended shelf lives. In return, consumers are willing to pay a premium, which is driving growth in the market.

Government Legislation - Government regulations have been introduced requiring clear labeling of trans-fats content in packaged foods. The Food and Drug Administration claim this additional label will reduce the risk of cardiovascular disease, and it is estimated that over a billion dollars a year will be saved in medical costs and lost productivity. Companies will incur additional costs in order to achieve compliance; however, it is

Biotechnology - The US is the largest grower of genetically modified (GM) crops. They enable high yields, reducing the price of the agricultural products. Consumers generally accept these foods, however, a slowdown in GM food sales may be attributed to long-term health and environmental concerns.

Increasing Costs - High oil prices have inflated costs for raw materials, packaging and transportation, whilst detracting from consumer spending. Due to the high levels of competition in food retailing, it is difficult for processors to pass these costs on, which has resulted in severe pressure on profit margins.

Significant Trends

Healthy Products - Companies are developing new products and brands to attract custom from more health-conscious consumers. Consumers are increasingly realizing that fad diets such as low-carbohydrate are not realistic long-term solutions to their health problems, and are concentrating on their overall well-being. Many players have also sought to exploit the growing niche market for organic food, in order to drive revenue growth.

Reduction of Brand Portfolio - The divestment of non-core operations allows for focus on the core products of a brands portfolio. Several major players have sold off production lines to concentrate on the products and brands that offer long-term growth opportunities.

Consolidation - Food processors are using the acquisition of well-known brands to create inorganic revenue growth. These consolidation moves are also driven by the need to create cost efficiencies, including enhanced purchasing power, capitalize on emerging markets, and defend top lines against fluctuating demand with a diverse range of products.

The processed food market consists of the total revenues generated through the sales of bakery and cereals, canned foods, chilled foods, confectionery, dairy food, dried food, frozen food, ice cream, meat, fish and poultry, oils and fats, pasta and noodles, ready meals, sauces, dressings and condiments, savory snacks, soup and spreads. The market is valued at retail selling price (RSP).

Thursday, August 23, 2007

Service Competition: Assessing Your Competitive Advantages

It's all about service! Every EDO provides them, but are your economic development services to businesses competitive with those offered by your competition? Existing and new companies looking at your area for investment opportunities will want to know what services you can provide them.

I find that economic development organizations (EDOs) give varying levels of consideration to their competitiveness from a service standpoint. Some give little or no thought at all to this issue. Your success depends upon knowing your competition and its service strengths. How do you do that?

Here are ten key questions you might consider exploring to develop a better understanding of your competition's services and how they compare with yours.

- First, what other areas do you compete with in a general way and in specific target industry markets?

- What economic development services does your area and your ED rivals offer, and what are their comparative benefits?

- What areas might launch new service offerings that are similar to those in your area? (Incentives are an important tool to assess here.)

- How significant are the resources (marketing budget, target industries, incubator services, etc.) your competition plans to launch in the future?

- How much does it cost your area and your competitors to provide the services you /they provide? Does your area have a cost advantage? (Getting good cost information on competitors is tricky.)

- Where do you and your rivals market services to businesses, and to which target market audiences? Is small business your service niche? Do you give more attention to technology companies?

- How successful is your service marketing performance in your major target market segments?

- What new ED services does your rival have in the pipeline, and how will they be marketed?

- How are your rivals organized? How well are their operations performing? (Are they organized in a vertically integrated way? How do they use networks? Are they adequately staffed? Is their staff well-trained?)

- What are your rivals' marketing channels (state development agency, regional EDO, industry groups associated with target industries, existing companies, leadership channels, etc.)?

- Are your rivals considering new strategic partnerships that could affect their competitive strength? For example, are new ties with a local college or university in the works? Is a new service relationship being considered with the local workforce development agency?

If you ask these ten questions, you will surprised at what you will learn that can help you become more competitive from a service standpoint.

Wednesday, August 22, 2007

Toyota Ups Its Canadian Investment

The Ontario Government is investing $8.7 million in new jobs and leading-edge ideas at Toyota Boshoku Canada’s auto parts plant, announced Minister of Economic Development and Trade Sandra Pupatello. The project will create 365 new jobs in Woodstock.

Toyota Boshoku’s $87.3 million investment includes building a 25,000 square metre plant that will manufacture front and rear seats, interior door trim and other interior products for the RAV4 vehicle model produced at Toyota Motor Manufacturing Canada’s Woodstock plant.

The Toyota Boshoku Canada investment is provided under the Ontario government’s Advanced Manufacturing Investment Strategy (AMIS). The $500-million strategy provides repayable loans, interest free for up to five years, to support investments in technology and innovation. The innovative projects supported by this strategy will generate more than $600 million in new investment and support the creation or retention of about 4,000 jobs.

“We are proud to call Woodstock home to Toyota Boshoku Canada’s first Canadian facility,” said Haruo Murase, President of Toyota Boshoku Canada. “The skilled workers of Woodstock and the surrounding region will help us reach the next level of competitiveness and success. We couldn’t have found a better place to do business.”

The government is now accepting proposals for AMIS round four, with a submission deadline of August 30, 2007. For eligibility requirements and an application package visit

www.ontariocanada.com (click on the “Programs and Services” link). In this year's budget the Ontario government lowered the project threshold for loan applications under the program to either 100 jobs created or kept or $25 million invested, to allow more small- and medium-sized companies to participate.

AMIS is part of the government’s overall strategy for jobs and prosperity that includes investments in infrastructure, postsecondary education, stable energy supply, research and innovation and key economic sectors.

Tuesday, August 21, 2007

Two Great New Economic Development Books

Two new books just came across my desk, and I want to tell you about them, but I also want to tell you about the books' author, Maury Forman, a friend of mine from Washington State.

First, let's talk about Maury. If you have met Maury, you know he is not the typical community economic developer. His career is not only dedicated to doing, which is a well-known hallmark of all successful economic developers, but he is also a talented thinker, writer and teacher. In addition to these gifts, Maury has a tremendous sense of humor. Every economic developer knows it takes a sense of humor to survive in economic development. His books and speeches include lots of humor; always used tastefully.

To me, Maury Forman is an alchemist, and I doubt that he has ever used that term to describe his career calling, but that is exactly what he does when he boils down the vast world of information and knowledge to its essential underlying wisdom. If Maury were a poet, his style would be haiku. In Maury's books, using fewer words and the right words is preferable to filling hundreds of pages. And did I fail to mention that all of Maury's writings include wonderfully entertaining cartoons?

Maury, who holds a Ph.D. from the Political Science Department at New York University with an emphasis in Healthcare, is the Director of Education and Training for Washington State's Department of Community, Trade and Economic Development. In recent months, he has been on temporary assignment as the Manager of Education and Outreach for Economic Development for the State of Washington.

So, that is Maury Forman. Now, a little bit about his two recent books.

The first is Your Town, A Destination: The 25 Immutable Rules of Successful Tourism, which Maury co-authored with Roger Brooks, a tourism development specialist and President of Destination Development, Inc. I won't list all 25 success rules described in the book, but will mention three that I especially like.

The first is Rule #4, Toilets Attract More Than Flies (The Rule of Necessity). What can I say but when it comes to community tourism, you must create what's necessary to respond to the tourist's overwhelming sense of "I gotta go."

Rule #13 is Insanity Has Its Own Rewards, which speaks to the need for communities to find and market what is unique to them. Knowing Maury, he would probably say that this rule even applies to the tourist's "going experience."

Finally, I love Rule #20, Make It Easy to Tell Your Cows from My Cows, which speaks to the branding issue with which many communities struggle. In this regard, I suppose Maury would remind us to "sell the beef" as well as the "sizzle" when it comes to our cows. Or maybe he would say, communities need to do a better job of "milking" their tourism resources to create a greater economic impact. Makes me wonder if there are any "sacred cows" when it comes to tourism development. Hmmm...

So, that's the first book.

Maury's second book, The Ten Commandments of Community Leadership, was co-authored with Michele Harvey, the Communications Coordinator for the Association of Washington Cities.

Three of the ten commandments jump out at me:

1. Thou shalt develop a strategic plan. To that, I say amen! The authors provide good solid advice on planning, including connecting community vision to the plan, building a collaborative plan, defining success, and linking the plan to budgets and other resources.

2. Thou shalt invest in education and training. Another amen brother! The authors encourage a broad-based approach to strengthening education and workforce development, covering the spectrum from short-term job training to strengthening K-12 systems and higher education.

3. Thou shalt promote respect. Yet another amen from me. Human relation is a vital aspect of economic development. I like the authors' suggestions under this commandment: acknowledge all ideas; critique ideas and not people; listen attentively; give credit where due; compromise; understand cultural differences; and distinguish facts from beliefs and opinions.

You can order the Ten Commandments from Moses at this link, and the tourism book can be ordered by sending an email here. Maury Forman can be reached by email.

Monday, August 20, 2007

NY State's New Office for Small Cities

New York Governor Eliot Spitzer announced today that the Office for Small Cities and Empire State Development (ESD) are providing more than $1.1 million in economic development aid to help businesses in Schenectady, St. Lawrence and Wayne Counties create and retain nearly 160 jobs. The funding will help local businesses provide health care and other benefits, upgrade facilities and equipment, and invest in workforce training.

The state grants have been awarded to Newton Falls Fine Paper, LLC in Clifton, CEL Packing, LLC in Wolcott, and Duanesburg Area Community Center, Inc. in Duanesburg.

The Office for Small Cities, a subsidiary of the New York Housing Trust Fund Corporation, will also leverage $26 million in additional funding from a variety of public and private sources to help fund these projects.

“When working to revitalize the upstate economy, reviving struggling small cities across New York must be one of our top priorities,” said Governor Spitzer. “Today’s announcement shows that we are making progress toward this goal. These grants hold the promise of new, good-paying jobs, which means more New Yorkers will have a secure economic future.”

Read more here.

Sunday, August 19, 2007

Best Advice Ever on Leadership

I don't recall who said this, but it is the best advice I have ever seen on leadership. I'm making a plaque and adding these words so it can hang in my office.

- The six most important words: "I admit I made a mistake."

- The five most important words: "You did a good job."

- The four most important words: "What is your opinion?"

- The three most important words: "If you please."

- The two most important words: "Thank you,"

- The one most important word: "We"

- The least most important word: "I"