US packaged foods at crossroads
A new Heartbeat EXEC report argues legacy brands are dated in consumers’ eyes, while smaller and private labels are generating growth.
Since the recession, many “legacy” consumer packaged goods brands have been unable to generate organic growth and are being outpaced by newer, younger players in the game. With consumer interest in CPGs declining, a new report says these larger companies must shift away from the traditional mindset of building growth through price, placement and existing brands, or there will be little room for growth.
In a new Heartbeat EXEC report compiled by Hartman Group CEO Laurie Demeritt and Senior Vice President of Knowledge and Innovation James Richardson, the authors state “legacy brands are dated and old from the perspective of the cultural history of food in America … and there is something fundamentally alluring about newer, younger brands in American food culture.”
According to Demeritt and Richardson, this allure of younger, specifically premium, brands is connected to a division of values around food they have been quietly tracking for 25 years.
As the authors examined the market, they found that macro-categories such as dairy and bakery are driving the CPG’s volume down, while others like bottled water, energy drinks and cold foods continue to grow.
One key growth sector is refrigerated packaged foods. Growth in this segment reflects a harmony of consumers’ desires for fresher, less processed foods and the convenience of shelf-stable foods that minimize preparation time.
According to Hartman, over the past five years, roughly half of the largest packaged food and beverage holding companies have been unable to keep their US retail top lines growing at a rate commensurate with either inflation or the sector average, and the small incumbents and private labels are generating the most consistent, strong growth in the market.
In short, the report argues that legacy CPG companies must diversify. “The emerging mindset points to the single most overlooked and uncomfortable truth in the packaged food industry: The underlying challenge behind low top line growth in food is increasingly the food and the symbolic quality halo of old brands, not price, not placement and not promotional/marketing mix.”
Harman says if large CPG companies continue to assume they only need to drive growth through existing brands and categories, there is little hope for organic growth. Digging deeper, the report “introduces a new framework to map your brands and isolate the key pockets of growth at work in your operating categories.”
According to Hartman, the framework is built from three key variables that intersect to allow for quick focus on the fastest growth pockets and white spaces waiting to be tapped.
The key variables according to Hartman are:
Relative quality (premium/non-premium): This simple binary distinction is the most powerful disruptor in contemporary food culture. It aligns with the distinction between “natural food” and “processed food” or, among the truly hard core, the distinction between “real food” and “junk food.” Even those consumers who do not buy into premium or its growth drivers can recognize the boundary when they are shown products on that side of this symbolic divide. They just find premium to be either pretentious or currently overpriced (e.g., organic).
Relative cultural familiarity (traditional vs. emerging food): Emerging foods are those that are literally new to American food culture in the last 20–25 years (e.g., hummus, nutrition bars, energy drinks, bottled water). This means the majority of Americans, even young adults, consider them new. Traditional American foods (e.g., beef burgers, saltine crackers, sandwich cookies, condensed mushroom soup) are those that sell to a broad swath of US households and have done so for three decades or longer.
Relative cost (high price/mid price/low price): If there’s one marketing “P” both consumers and CPG line managers see in a very similar way, it’s price. Consumers are very good at sniffing out the average-, low- and high-priced products at the shelf, because pricing information is highly transparent in stores (and increasingly across channels in real time). Hartman’s approack maps a brand’s weight average unit pricing to represent the “average” shelf price a brand’s consumer is noticing and paying. This is the most critical price with which to understand your competitive positioning in the market.
The full report can be downloaded here.