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Economic depression a stimulus for fresh business

02-Jun-2009
Last updated on 02-Jun-2009 at 15:57 GMT

The economic recession is biting across the globe, and bleeding casualties litter all industries, but now is not the time to cower. Those willing to spend may provoke a stimulation of their business that could set them up for years, if not decades, to come.

Stimulus is a word that has been bandied about a lot in the past year or so as governments, banks and other parties have discussed, proposed, implemented and amended various “stimulus packages” to help “get us out of this mess” as one US treasury official noted.

Bang for your buck

And the fact is, those willing to spend now are getting more bang for their buck than they would in more prosperous times. Acquisition targets are frequently reduced in price, marketing and advertising dollars go further and market visibility can be greater as competitors fall away or reduce their corporate profile. Input costs can be cut too, from ingredients to labour.

For these reasons some of the world’s biggest food and drink manufacturers, as well as food ingredients and supplements players, have made it clear they are not going to be bullied into fiscal meekness by what nobody is denying is an economic crisis of near unbridled severity.

Coca-Cola, PepsiCo, Frutarom, DSM, Kellogg’s, Tate & Lyle, BioSerae and Danone are just a few companies that have engaged in acquisitions, launched new products or brands, beefed up research and development and innovation initiatives – all seemingly flying in the face of generally accepted recession wisdom.

As US beverage guru, Jim Tonkin told BeverageDaily.com recently, Coca-Cola and PepsiCo have both spent a lot of time convincing their shareholders that now more than ever, money needs to continue to be spent on all aspects of business, including acquiring and developing new brands, R&D and marketing.

Coke did the same thing during the Great Depression of the 1930s - the BIG ONE the current climate is being compared to. Tonkin said Coke’s determination to keep spending when the chips were down and the advisers were calling a conservative game, is one of the reasons Coke remains the bigger of the two today.

The Georgia-based giant recently bought into the innocent smoothie company in the UK for an undisclosed sum, a move that did not cost the billions that have characterized some of its other recent activity (such as the $4.1bn takeover of Glaceau Vitamin Water), but a demonstrable sign of its ongoing commitment to brand development.

PepsiCo said it would, “continue to aggressively grow sustainably and long-term.”

Other kinds of opportunities are arising. US-based health retailer, GNC, is offering 25 per cent off the fee to new investors to open one its franchises, despite the fact its business continues to grow as dietary supplements sales growth in the US demonstrates recession-bucking resilience.

Stormy weather

So if you are thinking of battening down the hatches until the storm passes, you may want to think again. Without a firm hand on the rudder, your ship may inadvertently be drifting into treacherous waters, and your business may get smashed apart in the process. Inertia can kill.

That said, a recession is a recession. When consumer and business spending shrinks as it has done in the past 12-18 months there will be casualties – just look at General Motors filing for bankruptcy – absolutely unthought of two years ago.

It is unavoidable and it may be that this climate is seriously threatening your business’s long-term survival prospects. Or at least your growth and profit projections.

A consolidation is occurring as smaller, more cash-strapped operations are either swallowed or go under, and some fear the consequences of this on innovation. It’s a valid concern, with much innovation gestating in back-yard operations and start-ups, but genuine innovation will always find a way, even in the makeshift labs of the smaller players the big boys acquire for a song.

Parsimony may save your business but then again it may not. As the Great Depression economist, John Maynard Keynes, advised back in the 1930s, only through increased aggregate spending can the economy hope to prosper. While he targeted governments, his encouragement of spending one’s way out of economic difficulty is being demonstrated in many countries in both public and private spheres.

So alright then – who’s buying and who’s selling? And who’s leaving the game?

Shane Starling is the editor of NutraIngredients.com, and continues to spend as freely as possible. If you would like to comment on this article email shane.starling'at'decisionnews.com.

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