Question-and-Answer Session
Operator
(Operator Instructions) The first question comes from the line of Tim Ramey – D.A. Davidson.
Tim Ramey – D.A. Davidson
You talked a little bit about using some of the incremental margin from lower nut prices to ramp up promotion and I’m sure the question on all of our minds is how do we really think about that for the next 12-18 months? Your product is benefiting from lower input costs and you are a relatively high priced product. Should we be thinking about shelf price declines? Are you just going to try and hold the line and get it all on promotion? What are you going to do?
Michael Mendes
We have quite aggressively tackled the challenge and opportunity by planning for example the culinary side some promotion through this spring that will really we hope bring some better shelf price to consumers in the spring in the culinary nut segment but also stimulating off take off the shelf. The good thing about our business is we really feel our basic model is very complicit with our retail partners. We know they are making a percentage off the sale dollars that go through the register. So on its face for every manufacturer to reduce prices and the total sales dollars to go down is not a way to easily improve profitability. What they would like to do is find a way we can partnership together and bring more value to the consumers but hopefully have them maintain or increase the amount of dollars they are spending in this area.
Some of the examples are this spring we are promoting multiple unit purchases in smaller pack size in the culinary segment. Instead of promoting a discount price off of a larger 1 pound bag we may be promoting a certain discount off of purchasing two or three smaller sized items like a 2 oz or a 6 oz pack. We think that is the kind of strategy that wins for the consumer, wins for the retail partner and works well for us as a manufacturer.
We do think because we are coming off of historical high commodity prices and because our fixed cost is a relatively smaller part of our cost of goods sold than say most more value added CPG products at retail we can pass on some of that commodity price deflation not at a detriment to our earnings power as a brand. I hope that gives a little bit of color. I would say when you look at something like microwave popcorn that is actually a category that I think is going to do quite well in this type of an economy as people are looking for a good value snack. A pouch of microwave popcorn may cost $.25 to $0.40 a unit depending on the size and the pack you purchase. That is a pretty low cost single serve, multi person snack at home versus other opportunities.
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