Hartman Group

US: A recipe for growth in packaged foods

The packaged foods industry’s sales are flagging, and its business leaders seem to think the economy and the need for better marketing are to blame. The Hartman Group’s research indicates it’s something else: the food.

Legacy brands need to take a page from upmarket, entrepreneurial food businesses and start shaping their products to consumers’ needs, which are radically different than they were when many of these brands were growing fast. The Hartman Group’s free paper, A Recipe for Growth in Packaged Foods, outlines the issue and gives practical advice on how to start making the shift toward success in today’s changing food and beverage marketplace.

Breaking away from legacy behaviours

Major US food and beverage companies are experiencing anaemic volumetric growth, according to The Hartman Group’s analysis of Euromonitor data. It revealed that from 2012 to 2013, more than half of the top 14 branded food and beverage companies grew their US retail revenue slower than 1 percent inflation.

The implications are troubling for those at the helm of food and beverage companies with large exposure to the US retail food market:

  • demand is tapping out for many legacy branded food products, as these businesses can no longer count on population growth as a basic guarantor of top-line growth
  • innovation from many legacy brands continues to produce short-lived top-line hits, not sustained and/or large accretions
  • innovation successes (ie, large first-year hits) are not necessarily making up for volume losses elsewhere
  • brand portfolios are becoming segregated into decliners, flatliners and a small group of power brands, creating turf struggles over marketing/innovation investments

During three days of sessions at IRI’s recent “Winning the Race to Growth” summit in Orlando, ironically, the mood seemed fairly upbeat, despite the unimpressive performance of the industry.

a) macroeconomics
b) stale go-to-market strategies and/or
c) inefficient marketing/promotions

In other words, the reasoning is that everything will be solved when GDP picks up and when companies use better data to plug distribution holes and reach consumers with better targeted digital promotions.

The Hartman Group has a different theory: It’s about the food. In three days of conferencing, rarely did the subject of product or product design come up as part of the recipe for growth. That’s mystifying, given the relentless double-digit growth of disruptive upmarket food retailers that sell highly differentiated foods curated to a contemporary set of quality criteria. Even the management consultants on hand commented on the market-share growth of small brands.

The biggest long-term challenge facing the US food industry is that taste preferences are changing. This is most apparent among highly urbane and educated consumers, where the arbitrary boundaries of “too sweet” and “too fatty” are altering in ways inimical to the core food science paradigm of the US food and beverage industry.

The US food industry routinely serves crude flavour profiles associated with the unsophisticated farm cuisine of Middle America: heavy on salt, dairy and animal fat and, in the past half century, sugar. Fattiness.  Sweetness.  Saltiness. These are the primary flavour triggers the American food industry knows how to engineer and incorporate into branded processed foods. And it is very, very good at it. For years, there was growing demand for these flavors in all sorts of foods, primarily because US preferences were not changing….

To read the whole “recipe,” download the free white paper here