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Which way should I focus to grow? As industry growth consultants, this is the single biggest question we are hearing right now, since so many food and beverage producers are looking to reposition their businesses to meet market opportunities.
So here are three things you need to be thinking about.
1. Consumer shopping behavior has shifted: how well positioned is your product portfolio for tighter budgets, healthier eating?
2. Private label is still growing: are you defensively positioned as competitors or proactively strategic partnering?
3. Retailers are innovating consumer-shopping experiences: does your go-to-market plan support localized retail channel purchasing strategies?
Consumers’ new norm is tighter budgets and healthier eating. No question, there are unprecedented shifts going on in consumer buying habits, presenting both challenges and opportunities for food and beverage producers. Many producers are actively seeking to understand how to get ahead of changes in consumer preferences, which are being driven on several fronts.
“During the recession, consumers were challenged in the way they shopped and whether they went out to eat,” Says Danny Brager, VP Group Director, The Beverage Alcohol Team, The Nielsen Company (www.nielsen.com). He explains. “In the last two years consumers are much more carefully weighing the cost/benefit of their purchase decisions, resulting in a battle at the supermarket – for example, ‘How do we save money and reduce our spend on food?’ and ‘How do we get better-for-you food?’. 
At the same time, sales of some of the higher-priced organics and healthy foods bucked the trend for lower prices; growth slowed during that period but is returning again,” Brager says.
In supermarkets you are now seeing more variety of healthy foods (organics, natural, simple ingredients, locally grown) than ever before. And healthy eating is definitely mainstream. Anyone see the press coverage of Wal-Mart lately (www.Wal-mart.com)? Eat Healthy Wal-Mart Shifts Strategy to Promote Healthy Foods pledge.
The frugal spending habits consumers developed during the recession appear to be deeply entrenched, as shoppers continue to be careful with food spending, according to the third annual consumer spending survey by New York-based Booz & Co. (www.booz.com), a global management consulting firm. In 2010, 28 percent of the 2,000 respondents said they were reducing food-at-home expenditures, up from the 23 percent who reduced their food spending in 2009.
Smaller sizes are in. One approach that is working for some producers is to sell products of lower weight or smaller size and to charge the same or slightly increased price charged previously for the larger sized products. (See January Scion Advisors Food and Beverage Sector Insights by Hank Salvo: Good News! We are growing again: two ideas on how to grow more sustainably.)
More brands are tailoring packaging and product lines to the increasingly health-conscious Baby boomer generation. Whether through larger type faces and avoiding less distinct blues and yellows on packaging, or Diamond Foods' ergonomic Emerald snack-nut canisters that accommodate declining agility or retailers designing more comfortable store designs - 76 million boomers still account for an estimated half of total U.S. consumer spending.
The Millennial generation is now out shopping in hordes nearly as large as the boomers'. They are attracted to ‘buy local’ brands. It will be important for producers to learn more about what Millennials are spending money on, how much money they have to spend and how they want to be contacted. Nielsen’s research also shows that Millennials tend to equate price with quality, and that they will be more likely to buy more expensive brands once the economy improves.
According to Nielsen, one of the biggest differences between Millennials and previous generations is that they are much more open to trying new alcoholic beverages, for example. While most of them still prefer beer, they buy more wine and liquor than previous generations did at the same age. Brager points out, “another huge factor in the Millennials’ alcohol buying profile: multiculturalism. By 2036, the majority of Americans age 21 and over will be multicultural, with large number of Hispanics, in particular. While this may be a factor that unites the generation, the varying preferences of different cultural groups may override generational similarities to some extent.”
What is bearing out through this recession is a long-term shift in the American food culture. “This is less about responsibility and more about a visceral need. Much of this new food movement relates to the American consumer’s fundamental need for safer, easier, more meaningful, sensory and healthy connections with their environment, people, as well as food sources and in many places there is a back to the land movement well underway,” according to Kimberly Charles, Managing Director of San Francisco-based food and beverage marketing and public relations agency, Charles Communications (www.charlescommcom). (More on this in an upcoming Scion Advisors Article: Trend Watch – American Cultural Revolution propels food and beverage trends)
New frugality is accelerating private label growth.“ New consumer frugality – one that requires trade-offs between price, brand and convenience – has become dominant and ingrained behavior in several categories,” says Nick Hodson, partner with Booz & Co. Going back to business as usual is not an option. Retailers and consumers have responded to the new frugality trend with another surge in private label. Brager (The Nielsen Company) points out “that during 2010, private label sales were very strong. Private label dollar share in supermarkets has grown from 15 percent before the recession to more than 18 percent of total sales in 2010.”
This sector is growing even faster in the wine industry, albeit on a smaller base. As the economy improves, private label sales are expected to remain strong, and branded consumer packaged goods will find it challenging to regain lost market share. Some producers are adopting a private label channel strategy that is helping fuel their brand equity and volume growth, since retailers such as Costco are adopting cobranding strategies. No matter how you approach this, as a threat or an opportunity, you should thoughtfully consider your differentiation strategy vis a vis retail-branded private label products in 2011.
Retailers are innovating and optimizing. Private label is certainly one way that retailers are optimizing returns, however they are also investing in new technology tools to balance pricing and volume strategies at each store location. While brand owners certainly have challenging decisions ahead in the food and beverage categories, excitement and momentum is building in the retail sector. Retailers across categories are investing in new stores, designs and technology, but also in using customer knowledge to position the right product in the right stores at the right price and drive more effective localization.
Retailers are collecting consumer information from every data point – hastening to understand why, how and where consumers shop, and what they want. They are experimenting with new ways to innovate for their customers, to excite them, and make shopping easy for them: such as Target (expanding ‘Prototype Fresh Stores’), Trader Joe’s (fun and adventure for the delighted shopper) and Whole Foods (Health Starts Here).
For producers, the opportunity is to proactively and carefully invest in customer relationship management technology, to acquire more frequent and timely customer information and build 1-on-1-relationships with consumers and retail customers. Understanding what your target customers need and want will go a long way this year.
Finally, the concept of shifting trends is simple to understand, but may be hard to integrate into your plans. So just because revenues are growing again, going back to business as usual may not be an option. You may need to behave differently as a brand if your consumer’s needs have changed. And you will likely need to consider long-term brand, product and channel strategy shifts in order to grow sustainably.
It is a lot easier to provide insights on trends than to predict the future, which is what John Hinman and I will again attempt with our bi-annual update of our wine industry white paper: Perfect Storm - Wine Industry 2015. Be on the lookout for Part Four – to be released this coming April 2011! (see Part I, Part II, Part III).
About Scion Advisors, LLC. Specializing in the food and beverage sectors, Scion Advisors® is a business and strategy consulting firm with a proven approach that helps business leaders get to the next stage: reposition to grow or prepare for exit. The Scion team is comprised of seasoned executives with general management expertise who have achieved results across more than 100 companies and several industries. They have a track record of results, working alongside executive leadership to develop a plan and a team capable of navigating complex business transitions with more confidence.
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