Certifications — ROI or a Cost of Doing Business?

By Keith Kohler G’93/WG’93, President of K2 Financing and food industry consultant

Now more than ever in your typical visit to a grocery store (and especially a natural products outlet) you’ll find a large number of products with certifications prominently displayed on the packaging: Kosher, organic, non-GMO, fair trade, and gluten-free are among the most common.

Organic pic sm

Manufacturers continually question themselves: will there be an ROI in certifications?  How can I leverage it to drive sales (via marketing or other means)? Fundamentally, is the cost worth the benefit?

Five to ten years ago these were major pushbacks from manufacturers to certifying agencies that killed deals. Yet recently, consumer trends have evolved such that these certifications, when the product merits it, are EXPECTED by consumers.

Consumers can’t be sure that the products are what they claim to be without the certifications—a very real issue for some. For example, many companies have observed the unstoppable growth in gluten-free items and have haphazardly slapped the words “gluten free” on any number of labels, but only a certified product (by the GFCO or others) gives 100% reassurance to diagnosed Celiacs (like myself), who just cannot afford a risk.

For the gluten-free consumer, safety is paramount. For the other four certifications, product quality rules. Organic, non-GMO, and fair trade each attract a socially-conscious consumer, and each of their symbols have come to connote a higher-quality standard. This preference is particularly pronounced among millennial consumers. As for Kosher, numerous studies indicate that consumers prefer a Kosher-certified product over one not certified because they believe the strict supervision in preparation results in a safer product.

The reward for manufacturers: consumers feel that they “care more” and produce a higher-quality product than non-certified fare. This is the benefit.

But now for the problem: certifications have turned into a requirement for doing business—another cost.  For example, Whole Foods Market will require all products sold in their stores to be non-GMO by 2018.  Even though that may eventually be relaxed, WFM has nonetheless put the stake in the ground.

These days, while the upside of certification may be difficult to quantify, the downside of not being certified may be not even making it onto those grocery store shelves.

Keith-Kohler smBio: Keith Kohler is a finance and strategy consultant who specializes in the food industry, particularly in natural, organic, specialty, and gluten-free/allergen-free products.  He has helped numerous companies obtain different forms of debt financing and has also participated in several equity transactions.  He is an investor and V.P. of Business Development for GF Solutions, LLC, a new gluten-free manufacturing facility located in Methuen, MA.