Two weeks ago, just-food editor Dean Best and Chris Brook-Carter, the site’s publishing director, outlined the site’s forecasts for the food industry with an address at the IFE trade exhibition in London’s ExCel centre. Following high demand, below is the presentation in full.
A couple of years ago the path of the food industry seemed fairly straightforward. Premiumisation, globalisation, growth in emerging markets, the arrival of health and wellness as a driving force in the industry and green issues were all shaping the way we produced, marketed and sold food.
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If you look back at our research from 2007 and early parts of 2008, you will see plenty of evidence to demonstrate this. But what was not appreciated then was that these trends were driven by consumers riding a wave of cheap credit, rising disposable income and a level of affluence that had not seen before, but that was also unsustainable.
In the space of less than a year, the global business community has been turned on its head. There were signs as long ago as 2007 that all was not well. Though the housing markets of Western Europe and the US were still in growth, people began to talk of it peaking. And I remember being at a conference for food and drinks in London when industry representatives began to first talk of consumers being under pressure – largely because of rising costs: fuel, food and rising mortgage costs being the primary drivers of that pressure.
But I also remember listening to a senior executive from one food retailer tell the assembled delegates that the food industry would remain immune from any downturn – that consumers had got a taste for premium food products and that trading down was not an option.
To me it seemed a peculiar attitude to have at the time – and, of course, with the help of hindsight it will now seem to many utterly ridiculous.
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By GlobalDataThe world in which we do business has been in nothing short of complete chaos for the last six months.
It has been one disaster after another and barely a day goes by without further bad news from companies reporting job losses or monumental financial losses. The food industry has not remained unscathed.
In the last six months, Dairy Crest, ready meals manufacturer Bakkavor, meat processor Vion and Marks and Spencer have all announced plans to cut jobs. Convenience food firm Uniq has issued a profit warning and sold off a chilled fish business. And Premier Foods, the UK’s largest food group, has offloaded assets, lined up plans for a share issue and secured a cash injection from private equity in a bid to reduce mounting debts.
However, out of the chaos have appeared some very strong indicators of how the consumer is behaving in all of this.
On top of this we are getting a clearer picture of which trends that shaped the food industry pre-2008 have survived, which have waned and which have evolved or even been born out the new circumstances.
And that is the picture this report paints, and it’s a picture that still should foster a degree of optimism about the opportunities out there.
2009 will be an exciting year for food and drink, as new opportunities for better products and ideas present themselves. With pressure on budgets, different NPD strategies are being considered.
And our report considers these and other vital branding, marketing and sales strategies in the context of a number of key trends issues and challenges we fully expect to influence the sector over the next five years. Today I’ll run through four of these issues:
1.Ethical consumption
2.Global economic downturn
3.Obesity and diet-related illnesses
4.Evolving consumer demands: the simplicity trend
And I will now go into each one in a little bit more detail.
Ethical consumption
From the lowly plastic bag to wind powered supermarkets, green issues have been at the forefront of the food industry for the past few years.
However, the question of whether consumers will continue to care about the long-term impact their new biodegradable packaging as they struggle to meet mortgage repayments is one of the key issues the food industry need to find an answer for.
The simple answer is to suggest the average consumer will think “to hell with it” turn their backs on non-essential issues such as the environment. But the truth is that it is far more complex than that.
There is evidence to suggest that during an economic downturn, people can be encouraged to question the value and quality of the products they’re spending their hard earned money on.
Indeed consumers can become more selective and fussy about food and drink purchasing. Premium brands can still flourish in times of a recession, although frequency of purchase may fall, as buyers look to maintain a level of control on purchasing at a time when it can feel like everything else (unemployment levels, price of food, utility bills etc) is out of their hands.
So, what does this mean for ethical products such as fairtrade and organic?
The situation in 2009 appears to be wavering with consumers who have already bought into the ethical concept continuing to purchase these products, albeit less frequently or in smaller volumes than perhaps a year ago.
Those who dipped in and out of the ethical food and drink range, or who usually added the occasional item to their shopping basket, are more likely to be trading down to cheaper products.
The most recent report I have seen bears this argument out.
A new report by market research firm Information Resources tracked consumer-purchasing behaviour in key green segments in the US. It found that sales revenues of green products are up 4.1 percent, driven mostly by price increases, but unit sales in this category dropped 6.6 percent in 2008. This suggests fewer people are purchasing, but that those who have bought into the concept remain committed to the cause.
Meanwhile, the number of British shoppers who buy ethical food – including fairtrade and locally sourced – has increased since 2006 according to a survey by the Institute of Grocery Distribution (IGD) in February 2009.
However, the number of consumers opting for organic products has fallen. The IGD believes this swing towards other ethical options by more casual organic shoppers has had a knock-on effect on organic sales.
The survey confirmed that shoppers are now more price sensitive but that they are not relinquishing their ethical concerns and companies are spotting this opportunity – such as the announcement last month by Cadbury that Dairy Milk was to get the fair trade mark.
What then are the opportunities for food companies in amongst this rather complex picture?
Food miles
Firstly we are seeing a shift from the catchphrase of three or four years ago ‘Food miles’ to the more far-reaching issue of the carbon footprint.
Carbon labelling is still a niche concept but it is appearing on a gradually rising number of food and drink products, particularly in the UK, where the Carbon Trust is storming ahead with its labelling system. The aim of the carbon label is to encourage consumers to count ‘carbon emissions’ as well as calories – pushing the environmental issue further into the marketing domain.
But there are other key marketing messages at play too:
Being green can save money
A return to simple ideals
That ethical purchasing can heighten the sense of community which is important for many people during difficult times – here the co-op has been very successful in exploiting this concept.
Buying more ethical/environmental products helps consumers to take back some control and responsibility – a lot is going on in the energy market around this concept.
During uncertain times, companies that are bold, proactive, quick to react and keen to invest in green strategies will perform better than those who choose to rest on their laurels and ride out the recession. The trick is to identify the gaps and opportunities in the market that the more reluctant brands are missing.
Global credit crunch
As we have already discussed there is little doubt over the impact the global recession has had on the food industry. Lower consumer spend has been allied to rising commodity costs to produce a perfect storm for many in the industry.
But forward-thinking companies are already planning for the recovery, as well as how to deal with the inevitable decrease in frequency of purchase of more premium products during the recession.
One of the huge problems we all face is that this recession is like no other in living memory. So, companies that are reviewing past activity and making direct comparisons, i.e. between the 1990s and now, will find it difficult to make assumptions.
That said we believe there are rules and trends to monitor in order to survive this downturn.
During a recession it is more important than ever to monitor consumer behaviour and identify new strategies (in terms of consumption occasions, ingredients etc) to unlock opportunities.
Brands that are empathetic to the situation consumers find themselves in during a recession (without being patronising!) will resonate with existing and potential customers more than those that continue with a ‘business as usual’ attitude during a downturn.
Big brands such as Innocent Smoothies have quickly adopted a number of strategies to ride out the economic downturn. Now, Smoothies have been one of the drinks products worst hit by the UK’s slide into recession. Innocent, which is the market leader, told just-drinks.com in September 2008 that like-for-like sales had fallen by around 20% in value during the previous six months.
The company has now ventured into new territory, introducing ‘Veg Pots’ in September 2008, marking a completely new venture into the food sector, having built up its reputation as a soft drinks brand.
Building and maintaining customer loyalty trust will be imperative to brand success in the recession. Kellogg launched its quality campaign in November 2008 to discourage consumers from trading down to private label versions of its key products such as Corn Flakes. The advertising campaign, valued at £11.4m focused on the quality and value of its branded Corn Flakes. The signature of the cereal company’s founder, WK Kellogg, was shown in the advert beside the strap line, ‘none genuine without this signature’, which was first used 100 years ago to differentiate the brand from its competitors.
In fact it is important to discuss private label in this section, as there are signs that more consumers are switching from branded goods to discount private label products, particularly in certain categories, to cut back on the weekly food shopping bill.
Brands that have developed customer loyalty and trust will fare better in the recession as consumers become wary of unfamiliar products.
But people will inevitably trade down to budget-friendly products to save money, which will boost private label volume sales over the next year. Consumers will continue to occasionally spend more on affordable luxuries as treats and rewards for not going out to restaurants and bars as much as they previously have done. This means it will be the middle-ground market that will feel the biggest squeeze over the next two years. Brands will increasingly choose to position themselves in one of two ways: as the budget-friendly option, or as the affordable indulgence/alternative to going out.
Demand for private label products has provided a boost to brand owners who also choose to produce retailer brands. In Spain, for example, chocolate manufacturer Natra reported elevated profits in the first nine months. The company cited growing demand for private label products as the primary driver behind the 46.7% growth.
Retailers are increasing investment in private label to appeal to cost-conscious consumers during the recession. In Netherlands, Super de Boer, the second biggest retailer in the country, confirmed that it will continue to focus on pricing and promotions in 2009 including the enhancement of its private label range.
In the UK online retailer Ocado launched a 21-strong private label Everyday range in December 2008. And, Sainsbury’s and Tesco’s have been pushing their own labels at the expense of the brands they stock.
Let us not however, get too despondent. Despite the recession, the future forecast for food is comparatively healthy.
Food will be one of the fastest-growing retail sectors in the UK in 2009, according to a survey by Verdict in January 2009.
The food and grocery sector will grow by a predicted 3.1% in 2009, against a 0.6% decline across the retail market as a whole.
Matthew Piner, an analyst at Verdict, said: “Inflation driving higher prices, the fact food is an essential purchase and more consumers eating at home, have all boded well for the market. Moreover, food is the one area in which shoppers are likely to continue permitting themselves the occasional, more expensive ‘treat’.”
At the start of 2009, amidst the endless stories of redundancies and strike action in UK industry, the retail market made more positive headlines. Asda announced plans to create around 7,000 new jobs by the end of the year. Sainsbury’s will create a further 2,000 jobs in the next year and Morrisons is to create 5,000 new jobs, as part of its target of increasing selling space by one million square feet over three years. Tesco is also planning to create up to 10,000 positions.
Obesity and diet-related illness
Until we got crunched by credit or the lack of it, the greatest threat to the food industry was obesity and the creeping threat of how food producers and retailers could be legislated against because of the perceived fault of the food industry for the world’s expanding waistlines.
Clearly this is a huge topic, and remains so, even if it has dropped down the agenda in the face of the shrinking size of consumers’ wallets. In fact it’s an interesting aside to note that many of the food companies so far profiting from the recession appear to be fast food groups such as McDonalds and KFC.
And as just-food reported last week, the onset of the economic recession has caused healthy eating to fall down the agenda in the UK.
According to a survey conducted by consumer group Which?, some 24% of UK adults said healthier eating was less important to them in view of the downturn, while 56% said price had become a more important factor in food purchasing.
That said of course, there are still huge opportunities to be had in this sector, although companies need to tread carefully. So where are the opportunities in this trend?
The total US and European diet-related food and drink market is predicted to reach a value of US$128.5bn by 2014. Growth in Europe between 2008 and 2014 is forecast at a CAGR of 3.4%, just behind the US at 4.1%.
Growing concerns regarding obesity are particularly prevalent in the US, which is one of the ‘fattest nations’ in the world. As such, diet-related foods are predicted to increase in popularity to an estimated value of US$52.5bn by 2014.
However, Europe is not without its problems, and Eastern Europe is following the pattern witnessed in West Europe with increasing numbers of children and adults becoming obese. The European market will grow at a slightly slower pace compared to the US but represent an overall larger market value – US$76bn by 2014.
Shakes (positioned as meal replacements) and bars (to alleviate hunger) will continue to take the largest share of this value.
However, innovation in diet/weight management shakes is required, as the primary flavours continue to be vanilla, strawberry and chocolate, offering little variation in taste profile. The quality (and natural goodness) of ingredients are also being called into question in diet and weight management food and drink.
What are the NPD and marketing opportunities?
Be up-front and honest on packaging. Have clear labelling – go above and beyond the call of duty.
Consider your role in the portion control debate – is your product simply a smaller serving in a bigger pack to appeal to people monitoring their calorie intake or has it been reformulated to offer the best quality and healthiest ingredients available?
Communicate the healthy benefits of your product (if possible) on the front of packs. UK shoppers are six times more likely to look at the front rather than the back of pack according to research from the European Food Information Council (EUFIC) in September 2008.
Despite 80% of UK consumers being aware of Guideline Daily Amount (GDA) and Traffic Light (TL) labelling schemes, the research found that only one in four shoppers looked for nutrition information on food packaging in supermarkets.
Trust is the most important goal for branding and marketing of healthier products, and it is imperative in the diet and weight management sector. Nurture trust by being approachable, open and honest.
Natural and whole ingredients are preferable for consumers wanting to lose weight. Additives and preservatives are off-putting for those looking to be healthy overall – and not just in terms of their weight.
Consider your brand’s role in education. How can the brand be associated with more positive lifestyle messages without appearing to preach or contradict other brand communications?
Focus on simplicity
Amid all of this for you guys are the changing consumer demands, which are clearly heavily influenced by the issues we have all ready mentioned above.
Reflecting these challenges, just-food predicts ‘simplicity’ to be a hugely influential trend for branding, marketing and NPD strategies to 2014.
Consumers are looking for brands that have been stripped back to basics and offer real, genuine and honest values (and deliver on flavour and the other claims – particularly health claims). Trust is vital in today’s market and promoting simplicity as part of the overall company ethos can help to encourage and maintain customer loyalty and confidence.
Brand leaders
The simplicity trend can be seen in many guises from new product launches to marketing and advertising campaigns. A great example of simplicity is at Sainsbury’s and the success the company has had with its basics product and its switch and save advertising campaign. The company has very quickly created a brand that the consumer trusts because it’s no nonsense and other retailers such as Waitrose are following suit.
In the retail sector, Asda committed to ‘clearing the clutter’ by cutting back on the number of branded products in its average store. In February 2009, the retailer announced plans to remove up to 30% of branded items from certain categories in a cost-cutting campaign.
So, what are the key steps on the road to simplicity?
For the manufacturer:
Refine brand values and brand communication (Going back to original/traditional packaging and marketing strap lines)
Focusing on brand heritage (Remembering the original brand message)
Making front and back of packaging clearer
Creating simpler formats
Reducing on-pack claims and reducing confusing messages (at the point of sale versus advertising versus website etc).
Conclusions
What then are the conclusions we can draw from this report?
Firstly, this is an unprecedented time of turmoil for the global economy and the food industry.
However, from out of the chaos of the last few months, certain trends are emerging that look set to define the next five years of the food industry, which must respond if it is to continue to lead the FMCG sector.
Ethical consumption remains important – even if consumers will trade in these products less.
Consumers are still interested in premiumisation at the right time and with the right product
Simplicity – consumers are looking for core values and trust from their brands
NPD – the food industry must continue to innovate.
Empathy – be aware of your consumers needs in the downturn
We are already seeing signs of an industry looking to lead through the downturn. Companies are investing in innovation, new marketing and creating jobs.
The food industry remains one of the best-placed sectors to be confident of continued growth.
