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Food's New Recipe For SUCCESS

Betting products will drive profits 7/13/2007 08:00:00 PM Eastern

In striving to become a household name, television chef Giada De Laurentiis has three crucial ingredients beyond sheer talent: charm, business savvy and a hot show on Food Network.

The ratings for her signature series, Everyday Italian, have grown steadily since its 2003 premiere, thanks in large part to the Scripps-owned network's commitment to market it. But now, like Emeril Lagasse and Rachael Ray before her, De Laurentiis is looking far beyond Food to expand the reach of her name. Come September, she says, she will co-host the new fourth hour of NBC's Today show for one week each month under a one-year contract. Already a contributing correspondent for the show, De Laurentiis will become one of a rotating roster of co-hosts for all of the hour's segments.

Separately, she is planning both a line of oils, vinegars and spices with Italian pasta company Barilla to launch by December and a line of self-designed bakeware with Pyrex Glassware by early 2008.

Food Network has approached De Laurentiis to jointly launch products, but she has chosen to go it alone (she already has three cookbooks in addition to the ongoing Barilla relationship) because star and network haven't been able to align on terms of a deal, she says.

“I came in at a time where Food Network didn't have those ties with a publisher and others,” De Laurentiis says. “They were doing food programming, and that was it.”

That's no longer the case.

Looking ahead to new opportunities and with a glance back to some missed ones, Food is asserting its dominance over the TV genre it practically created, moving beyond its programming bread and butter and aggressively branching out to consumer products. The network will roll out a line of 400 items exclusively to Kohl's stores nationwide beginning Sept. 30.

Food has also increased its focus on in-house talent management, trying to persuade its up-and-coming TV chefs to launch products and give the network a cut of the profits.

“We're the first, top-of-mind, dominant brand when it comes to food on television and on the Internet,” says Food Network General Manager Sergei Kuharsky. “That kind of market power is what earns you the right to go into other categories.”

It also illustrates a major quandary faced by mature cable networks today: With full distribution and reliable though not tremendous annual growth in advertising revenue, they are trying to broaden their palettes beyond the screen to survive in the future.

Food's proactive moves, while seemingly a natural evolution, are late for the cable channel. Although several homegrown talents whose profiles Food painstakingly raised long ago have signed their own major branding deals, its own first effort at merchandising, a synergy-inspired plan to have network talent hawk products on sister channel Shop at Home, failed when the home shopping network went bust last year.

To top it off, Food faces competition in merchandising from networks like Bravo, which plans to introduce a retail line of knives branded with its cooking-competition show Top Chef. Food, however, is betting that its own network brand is strong enough to sell the Kohl's products: No talent is attached to promoting them, and none will be expected to use them in their TV kitchens.

Meanwhile, negotiating consumer deals with a personality like De Laurentiis—who also hosts Giada's Weekend Getaways on the network—after her star has risen carries its own issues.

“Yeah, sure, they ask [to partner on products], and it all just depends on whether we can agree on a lot of factors,” she says. “For now, we haven't come to any kind of conclusion.”

Although Food Network declined to comment on its negotiations with her or other talent, she is quick to cite its understanding and acceptance of her endeavors, as well as its steadfast marketing support.

“The funny thing is, it's synergy: If my food becomes more popular, Everyday Italian becomes more popular, and Food Network gets more popular, so everything feeds into the next,” she says. “Food Network's been wonderful at acknowledging that, if I grow, they grow with me and, if they grow, I grow with them.”

Nice stuff

Food Network's commitment to the growth potential of its own products can be found in its signature tagline: “Food Network Only at Kohl's.” The goods will be sold in all 900 Kohl's stores nationwide by fourth quarter. The wide-ranging inventory includes six-piece pot-and-pan sets in two materials, three styles of cutlery and dishware, four styles of knives, and such gadgets as a conical cheese grater, storage containers, salad servers, measuring cups, cutting boards, baking tins and cake pans. Line extensions, including more colors, are planned for the holidays and next spring.

And the stuff is nice.

A visit to Food Network's Chelsea Market headquarters in New York for a first-ever press look at the line's prototypes uncovered impressive heft, clean design and seemingly professional touches. (Full disclosure: This reporter dials for, not cooks, meals. But it's clear from some of the ingenious touches—the springform pan has a glass bottom so bakers can peek to ensure their cheesecakes' graham crusts aren't burning; handles on the stock-pot lids are over-elevated so big hands don't get burned on the glass when lifting the lid—that the items have been designed by a network whose more than 25 back-kitchen staffers represent decades of expertise.)

Intelligent, restrained branding

Food's team has exercised intelligent restraint in not splashing its network branding all over the products. One has to squint to make out the words FOOD NETWORK—sans logo—stamped on the bottom of the silverware; the same goes for the plates, salad servers, and any gadget or bowl meant for the dining area and not the kitchen.

“We're proud of our brand, and in the kitchen, you're going to see it more, but we don't want you to be sitting at the table seeing 'Food Network' everywhere,” says Senior VP of Culinary Production Susan Stockton, who helmed the line's design.

Kuharsky was brought in as general manager in March to fill the long-vacant senior role under network President Brooke Johnson. A marketing veteran of both entertainment and consumer products, he put in a stint at Disney (he claims shared credit for devising the “Vault Disney” concept to push DVDs) and spent years marketing Tylenol for Johnson & Johnson.

He comes at a pivotal time for Food. The network's parent company, Cincinnati-based E.W. Scripps Networks, started the channel in 1994 and spent the next 10 years focusing on the traditional growth areas for a cable network: selling advertising and gaining carriage.

While stars Lagasse and Ray were helping Food grow its ratings and distribution, they were also building their own merchandising businesses. That was fine with Scripps; merchandising brought in a mere $5 million in 2004. But that year, the company laid a plan to leverage Shop at Home, which it had bought for $100 million in 2003, to cross-promote talent from its other networks and sell their products.

The shopping channel was to double its volume of “lifestyle-related products” to 90%, most of them associated with Scripps channels. Food chefs were to sell aprons, knives and spices, and, in return for the access to buyers through Shop at Home, the network wanted a bigger cut of its stars' bounty and even secured the video-on-demand and home-video rights to Lagasse's series.

But Scripps ran into an unexpected bump on the road to higher profit margin. Shop at Home turned out to be a rare bust. After failing to secure affordable, long-term distribution deals for the network and suffering reported losses of $84 million, Scripps sold it in 2006 for a mere $17 million.

The risks in launching retail products now are also considerable. The 400 individual Kohl's products are a lot of wares to move. And TV brands don't always live well off-screen; note the failures of the money-losing Disney stores and Discovery's recent plans to shutter its 103 stores and lay off their 1,000 employees, 25% of the company's workforce.

Food is hoping that its products will be a more welcome category and that the time for such action is ripe. The network's own ratings are steady (averaging about 260,000 viewers a day in its target female 25-54 demographic, according to Nielsen), and cash flow is projected to grow 10% a year over the next several years, according to Kagan Research—excellent numbers for a cable network that has reached full distribution. Counting only traditional ad revenue and license fees, Food is projected to take in $757.9 million annually by 2011, up from $488.1 million this year.

Given the profusion of food-related shows on competitive networks (Hell's Kitchen and Kitchen Nightmares on Fox, Top Chef on Bravo, Anthony Bourdain: No Reservations on TLC, for example), Food wants to ensure that it always keeps the biggest slice of the genre's pie.

Food is hardly the only fully distributed cable channel thinking outside the box to bolster growth. NBC Universal's Bravo recently announced plans to brand books, cruises, even camp experiences, complementing its forthcoming line of Top Chef knives.

“On the one hand, I'm running this great TV business, and it's getting bigger. But there are definitely tensions pulling at the business model,” says Bravo President Lauren Zalaznick. She is aiming to have 10%-20% of Bravo's revenue come from the nontraditional sources of license fees and ad revenue over the next three to five years, up from about 5% this year.

“While we're maxing out on the core business—which is TV, where we have three, five, maybe 10 years of growth left in us—we clearly see that that's only one portion of the business.”

Housewares are in

Another such avenue, as everyone is quick to acknowledge, is the revenue from online advertising. Food's Web traffic is strong compared with that of many other cable networks. For the month of June, Food's site averaged 7.73 million unique visitors, according to comScore (by comparison, Nickelodeon's site, nick.com, generated 8.4 million). Scripps' other big cable channel, HGTV, averaged 3.80 million; Bravo garnered 816,000.

Plus, housewares is a growing business segment, bringing in $22.7 billion during 2006, up from $21.9 billion in 2005, according to consumer- and retail-information company The NPD Group.

Food believes that it has found an ideal partner in Milwaukee-based Kohl's, which reported more than $15 billion in sales in fiscal 2006. The retailer targets the same consumer base of women 25 and older and agrees on pushing affordability and accessibility. (Kohl's declines any trade press and would not give pricing for the Food line. The store already sells several lines of cookware, including Rachael Ray's personally branded items, such as a 10-piece hard-anodized cookware set that goes for $199.99).

At a time when most large retailers' sales growth is behind them, Kohl's expects double-digit earnings growth for the foreseeable future, according to analysts. They praise the company's razor-sharp attention to customers' habits and a model built around privately controlled brands of department-/specialty-store–quality items at lower prices.

Food is also trying to reclaim management of some of its talent. In addition to coddling newbie TV chefs from their inception through reality shows like The Next Food Network Star and the upcoming Next Iron Chef America (see box. page 11), executives are pushing their rising stars harder than ever on the power of the Scripps family of media outlets (including its stations and its news service) to help them grow their brands—and bottom line—simultaneously with Food's.

“It's the ability to take our assets, point in one direction and get the maximum distribution, and make two plus two equal five,” says Food VP of Marketing Susie Fogelson.

Drawing in the core audience

If the Kohl's products are indeed a hit, it will be thanks to the Food brand's star power alone. The boxes and in-store displays will bear no smiling pictures of De Laurentiis or any other talent but instead will offer helpful serving suggestions and teases for network-devised recipes inside.

“There's no question Food Network gave me my start,” says De Laurentiis, who says she is negotiating to do more Everyday Italian as well as some spinoff shows. “As to where the future lies, there are so many options. But none of us want to lose our roots. We don't want to give up Food Network because that's our home, where people first found out about this, and we never want to give up our core audience.”

The Kohl's line will be a test to see whether the network can further inspire that core audience to move from the set to the store, and back.

“The brand is more than strong enough to stand on its own,” says Kuharsky. “When you look at an entertainment-based brand and look to extend it to other categories, at its worst, it's logo-slapping. At best, it's brought to life in a new way.”

 

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