Amy Stern - 12/06/2016
Many of America’s most beloved food brands fall into the category known as CPG: consumer packaged goods. Not sure what that means? Then think Kraft, Unilever, Frito-Lay, etc. On the product side: Oreos, Kraft American Singles, Quaker Oats and more.
For years, these behemoths of the industrialized food age have been delivering some of America’s most iconic products to your shopping cart and ultimately, to your breakfast bowl, dinner plate or child’s lunchbox. These products not only have a place in our pantry but in our hearts. Many consumers have an emotional connection to these products, something that can best be understood from watching several episodes of “Mad Men.”
While these products may appear to serve a need, for many of them, the consumer need was created by Madison Avenue rather than true consumer desire. The advent of TV and radio offered large CPG companies the opportunity to take megaphone in hand and “push out” their message to consumers on a regularly scheduled basis. The problem, this formula left the consumer with little to no voice to interact with the brands they so loyally supported. All that has changed.
What we’ve been seeing over the past several years is a shake-up in the world of CPG. Smaller and more creative brands have been able to break through, offering consumers a host of exciting new products. The reason for this shake-up stems from several factors:
In the past, the company was king, but with the advent of social media, consumers became empowered with a voice. This development has allowed brands and their consumers to engage in valuable dialogue. The open lines of communication allow brands to know not only first-hand, but in real time when consumers approve or disapprove of a flavor introduction, their reaction to a new package design and even suggestions they may have for new products they hope to see unveiled. The problem for large CPG companies is that many of them were slow to understand social media and they often viewed it as a threat rather than a tool that could provide 24-7 access to the consumers they were so desperately trying to reach. The result is that large CPG brands found themselves still marketing according to the old model: continuing to tell consumers what they wanted vs. listening and responding to consumers’ needs and desires.
The companies that have been able to innovate in today’s world are generally smaller, more nimble operations. According to Nielsen’s 2016 Breakthrough Innovation Report, it was “the long and mighty tail” of 20,000 companies below the top 100 who drove 49% of all category growth in 2015. Compare this to the top 25 food and beverage companies which while generating 45% of category sales drove just 3% of total growth from 2011-2015. Companies that are included in the “long tail” include the likes of Bai 5, Chobani and Skinny Pop Popcorn.
Another factor that has upset the status-quo is consumers’ desire for transparency, especially in regards to food products. John Q. Public demands to know who/what is behind the curtain. They no longer trust big business to say what it means; a company has to provide proof it’s doing what it says. This premise has evolved to the point where consumers insist on knowing how their food is made and what is in it. No longer complacent to see names they can’t pronounce on product packaging, these same consumers are holding manufacturers to a higher standard, from how crops are raised to the definition of a “working wage” when it comes to the farmers growing them.
Health is also a big factor. The American consumer was the driving force behind a value shift that has led to the trend in non-GMO verification and organic certification. In the process, artificial ingredients and sugar have also been vilified. With many large CPG brands unable or unwilling to adapt quickly, their facile and innovative, albeit much smaller competitors, have been able to deliver fresh, distinctive entries to the marketplace. For example, Bai Brands created a low-calorie, antioxidant beverage that saw revenues double between 2014 and 215, netting close to $120 million during the latter.
Another factor which cannot be discounted when addressing this shift is the advent of digital technology. It was and is the CPG companies that have embraced digital technology early on and who are harvesting the bounty right now. Digital mobile and social innovations will continue to advance personal brand experiences vs. a one-size-fits all solution. Just look at Starbucks and its willingness to customize the product to individual consumer preferences with a “sugar-free macchiato with soy milk, double espresso shot, hold the whipped cream.” Innovations in technology will continue to impact how, when and where consumers shop. Our digital connectivity will continue to fuel the embrace and creation of more diverse multi-cultural products in the marketplace.
It’s not too late, the “old guard” of CPG still has opportunities to create new products, but at the same time they must implement new business models if future success is to be had. No longer can these companies continue to rely on doing things the way they’ve always done them with unnecessary levels of bureaucracy and long- form reporting choking the breath of fresh ideas. As we have seen insisting on, a proof-positive mentality and demanding endless analytics in advance of eliciting “big ideas” will no longer work. Innovation is what can/will deliver the next big breakout star (just ask Apple).
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