From October 2016 to March 2017 the team is joined by Guest Kats Rosie Burbidge and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Tian Lu and Hayleigh Bosher.

Wednesday, 11 February 2015

Italian baked goods sound and taste great: but can they be branded in foreign markets?

When it comes to the names of food, there is no doubt in this Kat’s mind: Italian names win out every time. Tasty as schnitzel or strudel might be, food just seems more delectable when it is called by its Italian nomenclature, such as panettone cake or cantuccini biscuits. But as gastronomically sensuous as these names are, they may not be enough to help (and, as suggested below, might even harm) small Italian food-makers in their struggle to expand their product lines beyond the stagnant domestic Italian market, this by successfully marketing outside of the country. The extent of this challenge was well-described in an article that appeared in the 3 January issue of The Economist, entitled “Export or die: Italy’s small-makers”. As reported in the piece, over four-fifths of food manufacturers in Italy are family-operated and have annual revenues of less than 10 million euros.

The domestic Italian market continues to witness record levels of unemployment and declining purchasing power by the consuming public. The natural instinct in such circumstances is to seek foreign markets. Till now, small Italian food-manufacturers are less likely to have engaged in export than their colleagues in Spain, France or Germany -- but the harsh reality of the domestic Italian market is leaving them with little choice. How to accomplish this is quite another matter. Their challenge is to go beyond the cachet enjoyed abroad by many types of Italian food and build their own brand identity. The battle is between serving as a mere manufacturer for private label products abroad and selling these products under the company’s own trademarks.

Consider the tale of Corsini Biscotti, a Tuscan-based family baking company. As reported in the article, this company had already engaged a sales manager, even before the economic downturn, to develop the British market for the company’s products. Building upon a relationship with the Sainsbury supermarket chain, it now sells its food products in such prestigious English retailers as Harrods, Selfridge and Lakeland as well, presumably under the company’s own trade marks. Indeed, sales of products in England now constitute around 25% of all the company’s sales. But the company’s brand appears to be doing less well in other foreign markets, where it is often relegated to serving as a mere private label manufacturer for local mega-retailers. In part this is due to the fact that most large European countries (other than Italy) have one giant supermarket chain, such as Aldi in Germany, Carrefour in France and Dia in Spain, which not only covers the local market but also maintains branches outside of the home country. As a result, a hard bargain is often driven with those suppliers fortunate enough to part of the retailer's supply chain.

As an example, to gain access, Corsini is being increasingly required to supply its bakery products to these giant supermarkets in accordance with often draconian conditions that do not enable the company to develop its own brands. This often means that the company has to narrow the number of its products and to provide many of these products for sale by the retailer itself as a private label product. In so doing, Corsini is placing a fundamental bet that it can ultimately sell its products under its own brands and marks. In the words of the article, private label goods are “a low-margin business, but often a stepping stone to selling branded goods to the same retailer.”

Sounds Italian -- or French?
The gatto in the gâteau ...
Maybe yes, maybe no (the piece does not provide any examples where a company has moved from supplying a company private label products and later selling its own branded product at the same mega-retail premises), and the answer to the question is critical to the long-term success of Corsini and other family-owned food companies in foreign markets. In part, the end-game will depend upon whether non-Italian customers are merely drawn to the Italian designation of the product, such as panettone or cantuccini (the latter of which, as Katfriend Julia Holden has pointed out, may be the subject of an attempt to register it as a geographical indication, here), purchase then being driven largely by price, or whether distinct brands within the product line are also important to a consumer. It also depends upon whether the retailer will ultimately carry the Italian’s branded goods after first selling the company’s products on a private label basis. Whatever the result, this interplay between foreign-language names for products and the further branding of these products is an interesting exercise in what kind of product designations actually move sales in given markets.

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