Is Big Food in Trouble?

The following is based on extracts of our podcast with Dave Donnan, Partner and Global Food & Beverage Lead at A.T. Kearney.

Our conversation focussed on the report ‘Is Big Food in Trouble?’, co-authored and presented by A.T. Kearney and The Hartman Group. You can read the full report by Laurie Demeritt, David Hokens, Randy Burt, and Dave Donnan here.

We look at it not as a case of big food being in trouble because of anything they’ve done, but more the change in what and how consumers are shopping.

Looking at changes in consumer buying behavior in our own shifting diets, we can see some profound changes that have occurred probably the last five to seven years. Consumers are much more passionate about their food today; think of all the celebrity chef shows, like Iron Chef and many other food competitions.

In addition, we see the whole ‘free-from’ movement - free-from artificial flavors, free-from sweeteners, free-from GMOs and other ingredients. These are now key attributes of what we look for and what we consume.

The second area is a major growth in the locally sourced food; organic products farmers’ markets and things like that. We’re seeing that in Europe and in North America, as healthier options are becoming more mainstream and these are key aspects of our food purchases.

The third area we’re seeing changes with consumers is that they are expecting what we call ‘food transparency’; knowing where and how your food was made. This is being accelerated with our mobile and social technologies, as we now report on the food we‘re eating. We’re either take pictures of it to put it on Instagram or we talk about it on Facebook or Twitter, so this whole food transparency has become another factor in how consumers view their food and their consumption.

Fresh foods such as fresh fruits and vegetables, meats and bakery are enticing more consumers to the perimeter of the grocery store.

Finally, fresh foods such as fresh fruits and vegetables, meats and bakery are enticing more consumers to the perimeter of the grocery store. Think about a grocery store, as you walk around the edge of the store you’ll find the deli, fresh fruits and vegetables, dairy, meats, seafood and bakery etc. In the center of the store is where more of the packaged food sections are.

With all of these factors, consumers have been shifting their purchases away from the overly processed foods and towards more fresh and so-called real foods. We looked at that shift in purchases and it has a dramatic effect on many of the large food companies which traditionally have been selling packaged foods you know foods that are sold in the center store. Over the last three years, the top 25 food companies have lost over $15 billion in market share to more fresh options as well as to small and medium-sized local produce.

Is Big Food unable to adapt quickly enough?

The thing is, most of the large food companies started as small food companies; you think companies like Kellogg’s starting off selling healthy cereal and breakfast cereals when breakfast was primarily bacon and eggs. Many of the large food companies have grown up in a similar way and now come as packaged foods. So it is a challenge now for them to shift gears but the larger food companies have several critical advantages which I think are in their stead.

First of all, there are well recognized brands that consumers trust. So when you hear brands like Kellogg’s, General Mills, Cheerios or Campbell Soup, you trust those brands; they’re brands that you grew up with, they’re brands that you have always had a fondness to. They’ve supported strong marketing and advertising dollars and many of the small and medium-sized companies just can’t replicate that level of marketing power.

Secondly, they have very extensive distribution across all formats of retail stores; from the traditional grocery store to the big box, mass retailer; from the smaller dollars-off stores and limited format stores, and even now in drug chains. Larger food manufacturers have those distribution capabilities and this is a major advantage since access to their products will drive much of their sales.

Finally, the large food companies spend hundreds of millions of dollars on research and development researching new types of foods packaging, ingredients and flavors.

These are the advantages they have, but the issue is, as we’ve said, the changing nature of what people are buying as they look for authenticity and “real food” aspect of it.

Over 180 thousand products were reformulated in 2016 to reduce their salt, sugar and trans fats, while adding fibers and whole grains.

The Consumer Goods Forum, an international association of global retailers and consumer goods companies, announced that over 180 thousand products were reformulated in 2016 to reduce their salt, sugar and trans fats, while adding fibers and whole grains. So you’re seeing a transition occur that large food companies are reformulating their product trying to get rid of what people consider to less healthy, and trying to really adapt their products to those new consumers.

Legacy Momentum

Where their real weakness is for them in many cases, is that most of their volume, most of their profits, are still tied up in those large food brands which are shifting with the way consumers are eating.

I call this ‘legacy momentum’, meaning that profits, volume and sales are coming from products which may not be front and center of what consumers are wanting to buy today, but they can’t change them overnight. As such, their current businesses and products still generate most of their revenues and it’s difficult to disrupt and replace these cash cows that support their businesses.

Do you work in Big Food? Let us know your thoughts on some of these challenges and opportunities in comments below.

Over the coming weeks, we’ll publish more insights from this podcast. Follow our blog to make sure you don’t miss it.

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