Dive Brief:
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The CEOs of Nestlé and Danone said multinationals need to be more transparent and address topics such as climate change and obesity – or risk losing market share to smaller, niche companies, reports FoodBevMedia.
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Smaller companies now have fewer barriers to market entry as they can communicate with consumers and sell their products directly online, the executives said at the Consumer Goods Forum in Berlin. Major players are responding by buying niche companies or brands known for their sustainable practices – such as Danone’s $12.5 billion takeover of Whitewave Foods or Diageo's purchase of George Clooney’s Casamigos tequila brand for up to $1 billion.
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"Consumers are getting more and more interested in how a product is actually made," Nestlé CEO Mark Schneider said in FoodBevMedia. "That requires a whole lot of transparency.”
Dive Insight:
Food and beverage giants are feeling more pressure from start-ups. More than a third of executives (35%) say competition from new entrants is the biggest threat to their business, according to a survey from KPMG International and the Consumer Goods Forum, while 37% cite decreasing consumer loyalty.
Nestle and Danone are among the companies that have used acquisitions as a way to tackle challenges from smaller players. Big deals include General Mills’ $820 million buyout of Annie’s in 2014, which allowed it to boost its presence in natural and organic space. Even poultry and beef giant Tyson Foods acquired a 5% stake in plant-based meat maker Beyond Meat last fall. Several companies including Kellogg, General Mills and even Nestle have set up venture capital arms to pursue minority investment opportunities in start-ups.
However, it is a changing world for the multinationals after a long period of market dominance as new companies are able to use social media and e-commerce platforms to bypass traditional routes to market. Increasingly, executives have started talking about building trust and going the extra mile, and they realize that consolidation by itself is unlikely to convince consumers.
But what does transparency look like? Some companies think this goes beyond ensuring a sustainable supply chain and providing ingredient information on-pack. Back to the Roots, for example, is a cereal company that takes this to an extreme, printing the recipe for its cereal on the box, along with information about what the packaging is made from.
However, large companies increasingly are moving their efforts to reach consumers online, where it is up to the consumer to decide how they want to engage with a brand. Last year, for example, Nestle USA said it wanted to focus on "closing the mystery gap about what is going on behind the logo." The company provided information on how it was working with farmers and suppliers. The result was 380,000 engagements, a 370% increase from 2015.
Consumer packaged goods companies are aware of the importance of opening up to the public, but for an industry used to doing things a certain way and hesitant to share their thinking with competitors, it can be easier said than done. The more information they can share online or on the package itself about what ingredients are included or where they come from, along with efforts the company is making to embrace natural colors and flavors, will go a long way toward helping restore public trust. As more food and beverage makers go this route, the laggards will have no choice but to do the same.