In what could lead to an unprecedented expansion in product promotion activity for grain-based foods, millers and bakers have initiated a feasibility study to consider the launch of a checkoff program.
If approved such a program could elevate industry spending from $2.7 million a year, the current annual budget of the Grain Foods Foundation, to $18 million or even significantly more (judging by other existing checkoff programs). The feasibility study is being conducted by the G.F.F. and is expected to last for several months.
Funded by industry, checkoff programs are designed to expand market share and increase revenue. The programs are overseen by the U.S. Department of Agriculture, as authorized by Congress, and once approved, require industry-wide contributions for activities aimed at promoting the industry.
The G.F.F. noted that a checkoff program is not a tax, a government-run program or used to influence government policy. Additionally, checkoffs do not promote individual brands, disparage other agricultural commodities or benefit only large companies.
Checkoff programs are premised on the idea that an industry has the potential to accomplish more together than is the case for an individual company alone, the G.F.F. said.
“A checkoff program allows an industry to unify as well as identify and address issues that impact its sales, while having a more substantial investment to support the category through consumer marketing,” the G.F.F. said.
Many other agricultural sectors employ checkoff programs. To qualify, an industry must produce and market an agricultural commodity defined as a food, feed, fiber or livestock and any product thereof. Other well-known checkoff programs include the Pork Checkoff, Cotton Incorporated and MilkPEP.
Effectiveness of checkoff programs is measured in return on investment, and the U.S.D.A. cites current programs having R.O.I.s in a range from $3 and up to $18 for each dollar invested by the industry.
Campaigns are kept free of specific brand names, highlighting for consumers category benefits. A checkoff program leaves brands and companies, as always, to compete on their own unique attributes and benefits, the G.F.F. said.
|Christine Cochran, executive director of the G.F.F.|
The idea of exploring a potential checkoff program for grain-based foods has been percolating for about four years, Christine Cochran, executive director of the G.F.F., told Milling & Baking News. Interest emerged in 2013 when interviews were conducted with those in the industry to gauge stakeholder feedback of how the Foundation was progressing in the pursuit of its mission. The interviews were conducted by Statler Nagle L.L.C. Jean Statler, a founder of Statler Nagle, had been part of Wirthlin Associates in the early 2000s, and in that capacity conducted values research toward what became the G.F.F.
In a more recent assessment process, launched beginning in 2016, Tom Nagle, a managing partner of Statler Nagle, conducted 55 interviews across about 35 companies.
“Checkoff was one of a number of ideas on the table in 2013 and in interviews in 2016,” Ms. Cochran said. “The volume of the conversation went up in last year’s interviews.”
During the exploratory stage, millers, bakers and other G.F.F. supporters were asked what success would look like, and increased sales were the principal goal for the group.
“What we heard back is that our current programming is worthwhile and valuable,” Ms. Cochran said. “The challenge that was recognized in just about every interview is that G.F.F. is not big enough to move the needle when it came to sales growth. We as a Foundation are at a point of evolution, and there is a need for a bigger industry commitment to help turn the ship.”
Work will progress on multiple fronts during the feasibility phase currently under way, Ms. Cochran said. In addition to reaching out to G.F.F. investors to tell them that the exploration process has begun, a steering committee is being structured. The committee will serve as a “guiding group,” Ms. Cochran said. Under current plans the steering committee will hold its first meeting in January.
According to the G.F.F., the steering committee will have representation from milling and baking. The group will “establish parameters and guardrails and ensure that all voices and perspectives are heard and considered.”
Guided by the steering committee, task forces will be created to more deeply understand issues confronting the grain-based foods industry with the objective to identify opportunities to better “protect and promote” the industry’s products. One task force will be focused on consumer and customer market research, assessing behaviors and industry perceptions, as well as values research. A second task force on innovation will look for potential areas of growth and development. Ongoing grains nutrition research will continue to be conducted to determine credible claims about the nutritional benefits of the industry’s products.
These task forces will be responsible for helping define the overall scope and strategy of a potential checkoff program, Ms. Cochran said. In addition to millers and bakers, task forces will include experts from retail, academia, associations and allied partners.
The Foundation has engaged outside counsel, heavily experienced in various industry checkoffs, to explore the drafting of a baking industry petition should the steering committee decide to move forward. The draft would then be disseminated for industry feedback in a U.S.D.A. comment period.
“The industry is tasked with drafting the proposal,” Ms. Cochran said. “It’s a negotiation with U.S.D.A. The department is very interested in governance questions. Equitability. Consensus.”
After the comment period, the U.S.D.A. will publish a final proposal and oversee a referendum to approve or reject the launch of a checkoff program either immediately or on a delayed basis. Any company that would be assessed is eligible to vote, Ms. Cochran said.
If established, the checkoff program would be overseen by an industry-governed board and by a staff hired by the board. The U.S.D.A. appoints the board with representation from all segments of the industry subject to assessments.
The board will be responsible for strategic plan development, allocation of funds and approval of business plans and programs.
The U.S.D.A.’s oversight role includes ensuring a checkoff’s fiscal responsibility, program effectiveness, fair treatment of stakeholders, and auditing nutritional claims in promotional materials and messages.
Ms. Cochran currently is visiting members of the industry to discuss issues related to the establishment of a checkoff program. She recently addressed the board of directors of the North American Millers’ Association about the subject.
Looking ahead, the steering committee will be focused on answering questions in three categories: money, market size and governance.
“The industry wants to know what annual assessments will be,” she said. “How many promotion dollars we need, the products to be assessed, and what level of products. We are working to develop a return-on-investment model based on category research and are exploring what products may be exempt, how imports and exports will be treated for assessment purposes.”
|Tom Nagle, a managing partner of Statler Nagle|
Mr. Nagle said return-on-investment measures for checkoff programs have been developed, refined, deeply studied and validated by agricultural economists over many years.
Built based on complex econometric models, the measurements are very different from analysis of impressions, attitudes and favorability measures associated with public relations programs (which, he said, is important analysis as well), he said.
Instead, using baseline analysis of trends in play before the checkoff was adopted, the return-on-investment measurements look at changes in the consumption rates for people exposed to a campaign/program versus those who were not. Also measured is the extent intermediaries, such as retailers or food service customers, adopt or amplify program strategies or messages or tools with their own dollars, Mr. Nagle said. The intent is to measure the impact of actions across the entire value chain.
Results are validated in numerous ways, including against the experience of the industry as a whole as well as the results of individual companies, he added.
Governance issues cited by Ms. Cochran include board representation, the nomination process and referendum voting and timing requirements.
What would a checkoff program look like if developed and approved?
Given the early stage of exploration at present, that question isn’t easy to answer clearly, Ms. Cochran said. The current focus is exploring whether a program that would impact sales is feasible. Still, the range of activities under a checkoff program likely would be considerable.
“I would expect we would see a program that is comprehensive, including some components of innovation, market intelligence and research, industry business development initiatives, and product, process and marketing R.&D.,” she said. “You’d probably see some b-to-b marketing and customer campaigns, as well as grains nutrition research.
“You would see consumer communications, like advertising, as a component. But one of the caveats I tell people is when you look across checkoff programs, the success of most depend on things you don’t see — not the consumer campaign.”
Several checkoff organizations currently devote resources to innovation.
“We’re trying to understand the landscape and see whether there is a role for checkoff in innovation,” Ms. Cochran said. “Dairy Management Inc. runs what’s probably the gold standard. An example would be a partnership between Ardent Mills and Domino’s Pizza to come up with pizza recipes to keep them in the school meals program. Our industry is unique. We need to figure out what works for us, if anything.”
An appeal of checkoff programs is that it requires everyone who benefits from the program to share proportionately in the cost, Ms. Cochran said.
“A checkoff eliminates the free rider problem in the current G.F.F. program,” she said. “That is a challenge that has been identified by our stakeholders. It’s been a hindrance to our growth.”
The G.F.F. said contribution rates for checkoff programs are typically based on an equitable and proportional formula established by industry.
Among 10 other industry groups with checkoffs cited in G.F.F. materials about the program, the median annual budget was $76 million, with a range of $18 million to $280 million. At the low end were potatoes ($18 million) and eggs ($20 million), and at the high end were soybeans ($118 million) and Dairy Management Inc. ($280 million).
Ms. Cochran emphasized that industry input will be diligently sought during the feasibility stage and that the process will be transparent and inclusive.
“I really want everyone to know this is the beginning of the process,” she said. “We’ve organized to start a conversation that is driven by baker, miller and supplier stakeholders to better understand what the industry would like to do. No one will be excluded.”