Fast Moving Food companies’ New Recipes to Find Flavour with Consumers and Favour with Investors

During the past six decades, convenience has been the overarching customer need that the processed/frozen foods industry focused on. It would not be an exaggeration to say that many from Gens X and Y (and some GenZers too) grew up on “convenience foods” such as Macaroni and Cheese and various brands of TV dinners. This extended period of high growth was fuelled by several factors: microwave ovens becoming more mainstream starting the 1960s, constant innovations in food-grade packaging, the creation of artificial flavourings and textures and of course, strong brands.

Consumer needs and expectations are changing

Over the past few years, food companies are increasingly feeling the effects of changing customer expectations. There is a clear and growing preference towards healthier, freshly-made food that is tagged as “natural”, “fresh”, “organic”, “no preservatives”, “sugar-free”, “low sodium” etc. There is also greater environmental consciousness leading to minimization of intensive single-use plastic and styrofoam packaging.

Various start-ups use digital technologies are working with specialist delivery service providers (e.g. Uber Eats) to offer convenience of a different kind- consumers can order a wide variety of food online and get it delivered when and where they want. This allows consumers to satisfy their desire for fresh and healthy food without compromising on the convenience aspect.

Grocery chains have introduced “kits” (e.g. Kroger’s “Home Chef” and Walmart’s “Blue Apron”) that contain all necessary ingredients for specific recipes, freeing consumers from being limited by the ingredients they have at home. This makes it easier for customers to try new recipes and gives them the satisfaction of cooking a meal at home while also saving time relative to doing it all from scratch.

Another shift is the push by independent restaurants and fast food chains to beef up their delivery capabilities, allowing them to deliver fresh, restaurant-cooked food to the homes/offices of consumers (based on online orders placed with the restaurant). This provides customers with a wider choice of cuisine combined with customization (avoiding allergens or dietary preferences) and convenience.

How the CPG food industry has generally responded thus far

As with other industries facing intense disruption, the CPG foods industry too has begun rapid consolidation. Well-known brands and even entire companies are changing hands. Hershey’s has acquired Krave beef jerky, while Pacific Foods organic group was purchased by Campbell Soup and Conagra did the same with Pinnacle Foods. Warren Buffett’s Berkshire Hathaway teamed up with Brazilian-American investment firm 3G Capital to acquire H J Heinz in 2013; two years later, they merged the company with Kraft. Conagra acquired Frontera Foods in 2016 to expand its product portfolio.

Aggressive cost-cutting is another strategy that CPG food companies have adopted. For example, after Heinz and Kraft were merged, marketing costs have been significantly trimmed; budgets are approved only after rigorous analysis and justification of proposed spends and their expected ROI.

What can food companies do?

M&A and cost-cutting offer a temporary reprieve at best. What packaged food companies really need to focus on are on three strategic imperatives:

  • Rationalize existing portfolios;
  • Develop new products; and
  • Ensure that their merchandise gets enough visibility both in grocery stores and on online retail sites.

The first priority is to ensure that product lines that do not contribute much to top or bottom-lines are discontinued. Also, the number of SKUs needs to be cut down, as manufacturing multiple pack sizes and variants adds to costs- possibly without commensurate returns.

The second is to develop new offerings that address the customer’s need for healthy food made from natural products and with fewer chemicals and preservatives. Conagra, for example, has incorporated healthy ingredients such as kale to breathe new life into its frozen food brands such as Healthy Choice and Marie Callender’s. But the real success of this strategy will be visible when more healthy and tasty options are created for breakfasts, lunches dinners and in-between snacking.

The third imperative is critical too. On the one hand, manufactures must tie up with e-commerce retailers to ensure that their SKUs are available and visible prominently. They must do the same with brick-and-mortar grocery chains and convenience stores. The threat from private label in-store brands is real- and growing. Kirkland’s Signature is Costco’s house brand, and is less than 30 years old. And yet, it is reported that in 2018, consumers spent 50 percent more on Kirkland products than on equivalent Kraft Heinz products (whose brands are a century old)[1].

It is noteworthy that between 2013 and 2018, US$17 Billion worth of CPG food product sales moved from large to small players[2]. This shows that more agile and innovative businesses are taking market share away from traditional leaders whose brands ruled store shelves for decades.

Investing in an extended innovation network is key

In-house R&D efforts have resource limitations (financial, time as well as mindsets). That is why companies such as Kraft Heinz are incubating start-ups. This is similar to how large technology companies incubate start-ups to broad-base and accelerate innovations that are then potentially absorbed into their own offerings (although this is not mandatory).

Under Kraft Heinz’s three-year old Springboard program, the company selects a group of start-ups and provides them with funding, infrastructure access and mentorship. The selected start-ups typically work in one of the four areas that Kraft Heinz believes will shape the future of the food: Natural & Organic, Specialty & Craft, Health & Performance and Experiential brands[3]. Two cohorts of start-ups are already being incubated, and the company has opened up the applications process for the next batch.

Food companies also need to listen better to their consumers, who now communicate their feelings (both positive and negative) freely over social media. In fact, the launch of Kraft Heinz’s mayochup (mayonnaise and ketchup mixed) in the UK is believed to have been the result of “social listening”, which allowed them to figure out using a Twitter poll that there was interest in the product that was available only in the Middle East. The success of Mayochup has prompted the company to launch Mayomust (mayonnaise and mustard) and Mayocue (mayonnaise and barbecue sauce) as well.

Driving disruptive innovation and managing incubator/accelerator programs need new types of expertise and experience. This is a great opportunity for companies in the CPG foods industry to attract talent from other industries where managed innovation programs have existed for many years. This is also a good time to bring in new thinking to lead foods businesses. After all, just as fresh ingredients make for better food, fresh thinking is vital to better business growth.


[1]http://nymag.com/intelligencer/2019/02/whats-wrong-at-kraft-the-answer-is-bad-for-warren-buffett.html

[2] https://www.forbes.com/sites/andriacheng/2018/12/20/food-trends-2019-delivery/#53301d3f28cb

[3] https://www.foodingredientsfirst.com/news/accelerating-innovation-kraft-heinz-backs-five-next-generation-disruptive-brands-healthy-snacking-dominates.html

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