Alexia Howard, an equity research analyst, spoke to the conference about how revolution is happening outside of the tech sector. There are big opportunities for smaller and bigger companies. There are a variety of big trends that will shape the landscape.
- Rise of social netowrking
- Health and wellnes
- E-commerce and packaged food
- US Hispanic consumer
- Emerging markets opportunities
- commodity cost volatility and why it’s happening
Social Networking
Social networking is transforming packaged food. Moms of children under 7 are 11% of households today. That 11% of US adults are probably influencing about 1/3 of meals today. Millenial Mums are becoming increasingly concerned about artificial ingredients. This includes topics like yellow die, GMT, etc. This means that clean label ingredients are where the industry is heading.
- There are more than 15 million download of MyFitness Pal calorie counter application.
- The food ucate app is also popular
- Apple and Google announced initiatives to have apps to manage health
- E-commerce lowers the barrier to entry and help “little guys” break out easier. Chobani Greek Yogurt is an example
- Digital advertising has lower costs, making it easier for smaller brands to compete
- Time compression pushes smaller more frequent communication. This pushes more snacks and less “three meals a day”
These are changing the landscape quickly in the packaged food landscape.
Millenail Mums:
- spend 66 hours online pe month
- 65% have a smartphone vs 47% rest of us
- 80% are active on social media.
- Over 1/3 of mums have posted online about healthy eating
In the US., the biggest trends of food include Transfat foods. But Mums are worried about organic, BPA-free, antibiotics / hormone free foods, preservative free foods, etc. Notice that their concerns are at the forefront of trends. They will push trends in the food industry.
Case Study: Chobani managed to take 43% of the yogurt market. They did this with brilliant marketing. Acceptable for guys to buy. Social networking helped.
What does this mean?
- Need to get to know consumers better. Keep an eye on consumer trends.
- McMormicks flavor print or profile is a good example of understanding the consumer which impacts the experience
- Sensing Consumer demand patterns
- Handling consumer activists. How do you deal with an issue when something goes viral?
- Koshi was called out on the GMO issue
- It’s not just the heavily processed foods that are being impacte
- Embracing snack formats
Health and Wellness
Sales growth is slowing for large food companies. Everyone thought the slowdown was a blip. But the volumes have remained stubbornly down. Some companies are well positioned for this because they are on top of the trends.
What’s growing:
- Fresh fruits
- spices
- Yogurt
- Milk
- Gluten free – big
- Naturally packaged food- big
- Chilled food is growing in the developed world.
- look at the drug stores which now have a load of chilled healthy sandwiches and snacks
- In the UK, about 40-50% of sales of packaged foods are private label products. They have a much higher proportion of prepared restaurant quality foods. (16% of sales in UK vs 7% in the US)
- Target is starting to embrace this trend with their Be Fresh initiative
What’s not:
- snacks
- sweets
- etc.
Freshness has become very important to consumer. They want fresher and healthier products. This isn’t just high end consumer btw. Even lower income households have these concerns. ]
Supply Chain
How do you decide whether to manage the decline of profitable legacy brands? This means that:
- You will have to launch new products using co-packers
- Acquire and integrate faster growing brands
- Hershey is an example
- Kellogs bought Koshi as another example
- Handle the shift from ambient to fresh prepared foods
- Extending the shelf life of fresh prepared foods will improve the economics
- Avoid product proliferation
- Tang brand realized they had 400 flavor specifications from lots of suppliers. Took the effort to simplify and reduce costs by 22%
E-commerce
There are several categories of opporutnity
- Coffee
- Skin Care
- Groceries
- Baby Food – big growth
- Pet food
It’s the niche brands that are coming up online. Amazon’s top five include things you may not have heard of. This drives new distribution models like Amazon’s on site fulfillment. (Vendor Flex program). This also means you need to handle increased competition as brand loyalty increases. Finally, the you must manage price transparency so high / low strategies are becoming less effective.
US Hispanic Consumer
They are 16% of the population today but are 60% of the real growth in consumer spending over the next 40 years. The big US food companies haven’t cracked this yet. Hispanic spend about the same amount on food in the population average. But US packaged food companies under index by 17% in this categories
Challenges
- Authentic innovation
- love Goya
- Not love El Paso
- Brand positioning
- More than just doing an ad in spanish
- need holistic approach
- Effective marketing
- Different retail outlets
Emerging Markets
There is a slow down in packaged food in developed world. But emerging markets see a huge pick up in packaged foods. So there is a real rush to get more exposure in these markets. Hershey bought a chinese food firm. Heinz bought Karo. McCormick is doing a variety of initiatives.
Biggies:
- China (17%)
- Brazil (9%)
- Japan (75)
Implications
- Figure out whether you acquire, build from scratch, joint-venture
- Lots of challenges with each option so be careful on each. There are lots of great examples of failure here
- Building from scratch isn’t an option now. It can take 10 years just to build it
- Will US brands travel
- snacks work well. Oreos have $500M in sales in China in a short timeframe
- Dairy products are hard to transfer due to local regulations
- How should you configure procurement and supply?
Commodity Cost Volatility
Between 1950 and 2000, there was almost no change in global acreage dedicated to grains and oil seeds. Around 2000, this started to change. Demand for acreage increased. This was caused in part on the food for fuel shift. This means some crops have moved to new growing areas. The marginal costs of producing the crop and distribution has really increased. This of course causes a lot of volatility. Alexis doesn’t expect this to slow down
Implications
- You need to secure your supply
- example, Hershey is worried about security cocoa with Ebola in Africa
- Pricing strategy needs to change to manage everything
- Hedging strategies are important
- many are signalling how far out they have bought for the year
- Smuckers faced a cotton price spike which would impact peanut planting. They paid growers to ensure it …. and then got caught with no actual problem
- Avoiding adulteration of raw ingredients
- Improving sustainability
- Already happened in Europe
- Mars recognized a problem 10 years ago. They also noted that it takes 5-7 years to reach maturity. Small cocoa farmers plant and later they figure out which ones will produce.
- So Mars invested in Cocoa genome research to figure out which plants work best. This will lead to a massive increase in yield.
- Mars gave this research to the world for free
