Local message working for small companies

By Deborah L. Cohen

CHICAGO (Reuters.com) -- Holgate Toys, a maker of well-known wooden playthings such as the Rocky Color Cone and the Classic Bingo Bed, traces its roots to 1789, the year George Washington took office as the first U.S. president. These days, it may be more important that the company traces its supply chain to local forests in central Pennsylvania, which provide hardwood for the company's nearby factory in Bradford.

A local supply chain and domestic production are helping to lift sales at Holgate at a time when many of its competitors in the toy industry are struggling in the face of an unstable economy, depressed consumer spending and the taint of recalls from China that have left customers wondering about product safety.

Holgate, a division of privately held art and crafts manufacturer Pepperell Braiding of Pepperell, Massachusetts, says sales are up over the same period last year, and expects a healthy holiday season. Its hardwood toys are purchased online or through specialty retailers.

"There have been a number of consumers who have finally said enough is enough," says Dick Bly, Holgate's president. "Consumers started driving this engine about a year and a half ago."

It was around that time- in August, 2007- that toy giant Mattel Inc. announced the first of two massive recalls of Chinese-made toys contaminated with lead paint, events that followed a March call-back of pet food from China containing the toxic additive melamine, which had sickened hundreds of U.S. pets.

More recently, consumers have watched China-considered slow to respond to issues that threaten consumer safety-grapple with a domestic scandal over melamine-tainted milk and infant formula.

The backlash from consumers means that small, locally operated companies, whose materials and processes are often an open book, may have a competitive advantage over their larger rivals, which remain exposed in China and other emerging markets where they have shifted manufacturing to drive down costs.

"You see more people glad to have product labels saying ‘made in the USA' when they buy food," says Marcia Mogelonsky, a senior U.S. research analyst for Mintel International, which studies consumer trends. "There's more transparency."

"Consumers are concerned about products that may contain Chinese ingredients because the Chinese market is somewhat compromised right now," she says. "If a product is produced in a plant in the United States, they assume (there's) more control."

Established companies such as Holgate, as well as newly minted start-ups in the food, pet products and personal-care industries are attempting to leverage their homegrown message.

Makers of items used by families may have a particular advantage; China recalls have prompted parents to become much more judicious about everyday selections, with Web sites such as safetoys.com and a host of consumer advocacy blogs serving to increase awareness.

"We just really seemed to notice last winter, last spring," says Tricia Mumby, co-founder of Mabel's Labels Inc., a Hamilton, Ontario, Canada-based maker of customized personal labels. At trade shows, where Mabel's Labels drums up interest from new accounts, Mumby says she has been receiving more frequent inquiries about where and how her tags, which are often affixed to children's clothing and toys, are manufactured.

"Whenever we can, we say ‘product made in Canada,'" she says. "People want to know that. We … make it very obvious to people."

Indeed, one important but oft-overlooked way to take advantage of the new opportunities for smaller producers is to get the message out, says Joel Warady, a marketing specialist based in Evanston, Illinois, whose firm represents small consumer companies.

"It gives a great opportunity for the smaller company to take advantage of this from a sales standpoint," Warady says. Because the use of higher-quality ingredients and components raises costs and lowers profit margins, it is imperative that small sellers of premium goods reach out to audiences willing to pay more for quality, he says.

Pursuing Web sites that screen and aggregate high-quality products, such as Fatbraintoys.com, an online retailer that bills its selections as " just the best, safest, and highest-quality toys," is one strategy that seems to be working, Warady says.

"We are seeing an increase in sales," says Marsha Cade, co-founder of Regionalbest.com, a Michigan-based website that identifies and promotes artisan food products produced by local farmers, fisherman, cheesemakers, beekeepers and other producers. "The success of our company is going to be the quality we keep. We've done a ton of research."

Cade, whose site screens participating vendors for quality, ingredients and a host of other factors, says she gets calls every week from interested sellers looking to get their story out to broader audiences. Regionalbest operates by taking a percentage of sales and forwarding orders to the specific vendors for packaging and shipping.

"This is a point (where) small businesses do have a certain amount of power and influence because they can say, ‘Hey guys, we're your neighbors, we're your friends, we're right here," says Mintel's Mogelonsky. "We're not going to hurt you; we want you to help us grow our business."

(Deborah L. Cohen covers small business for Reuters.com. She can be reached at smallbusinessbigissues@yahoo.com)

SOURCE: Reuters